Question

A company has a minimum required rate of return of 9% and is considering investing in a project that costs $350,000 and is expected to generate cash inflows of $140,000 at the end of each year for three years. the net present value of this project is

Answer 1

The net present value of the  project can be calculated as follows:

NPV = - Cost + present value of all cash flows

Cost = $350,000
Present value of all cash flows = C*{[1-(1+r)^-n]/r}
Where C = Yearly cash flows = $140,000, r = discount rate = 9%, n = time of generating cash flows = 3 years.

Therefore,

NPV = -350,000 + 140,000*{[1-(1+0.09)^-3]/0.09} = $4,381.25