Answer:
$101,493
Explanation:
Net present value is the Net value all cash inflows and outflows in present value term. All the cash flows are discounted using a required rate of return.
First we have to calculate the WACC to determine the cost of capital for Net present value calculation.
WACC is the average cost of capital of the firm based on the weightage of the debt and weightage of the equity multiplied to their respective costs.
Formula for WACC
Weighted Average Cost of Capital = (Cost of common stock x Weightage of common stock ) + (Cost of preferred Stock x Weightage of preferred Stock ) + (Cost of Debt (1 -t) x Weightage of Debt)
Placing Values in the formula
Weighted Average Cost of Capital = ( 15.4% x 50% ) + ( 9.2% x 5% ) + ( 8.3% x ( 1 - 0.21 ) x 45% ) = 7.7% + 0.46% + 2.95% = 11.11%
Now we will calculate the NPV
Net Present Value = Initial Investment + PV of all future cash flows
NPV = ($287,000) + [ $91,000 x ( 1 + 11.11% )^-1 ] + [ $248,000 x ( 1 + 11.11% )^-2 ] + [ $145,000 x ( 1 + 11.11% )^-3 ]
NPV = ($287,000) + $81,901 + $200,884 + 105,708 = $101,493