Answer:
$9,118.48
Explanation:
The calculation of the project's net present value is shown below:-
Year Cash flows Discount rate 12.5% PV of cash inflows
(in $) (in $)
0 -500,000 1 -500,000 (A)
1 0 0.8888888889 0.00
2 0 0.7901234568 0.00
3 95,000 0.7023319616 66,721.54
4 150,000 0.624295077 93,644.26
5 150,000 0.5549289573 83,239.34
6 200,000 0.4932701843 98,654.04
7 225,000 0.438462386 98,654.04
8 175,000 0.3897443431 68,205.26
Present value 509,118.48 (B)
Net present value 9,118.48 (B - A)
Therefore to reach the net present value we simply deduct the present value from the initial cost.
