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3 years ago

A firm, with an 18% cost of capital, is considering the

Business

1 answer:

mafiozo [28]3 years ago

3 0

Answer:

a. $316,920

Explanation:

The computation of the net present value for Project A is shown below:

The net present value = Cash inflow after considering the discount factor - initial cost or initial investment

Cash inflow after considering the discount factor = $7,400,000

The discount factor for 4 years at 18% = 0.5158

So, the cash inflow is

= $7,400,000 × 0.5158

= $3,816,920

And, the initial investment is $3,500,000

So, the net present value is

= $3,816,920 - $3,500,000

= $316,920

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