Question

Suppose Cute Camel Woodcraft Company is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $400,000. The project is expected to generate the following net cash flows:
Year Cash Flow
Year 1 $325,000
Year 2 $500,000
Year 3 $400,000
Year 4 $475,000

Cute Camel Woodcraft Company's weighted average cost of capital is 8%, and project Alpha has the same risk as the firm's average project. Based on the cash flows, what is project Alpha's net present value (NPV)?

Answer 1

Answer:

$996,267.41

Explanation:

The Net Present Value of Alpha`s project can be determined by using the CFj Function of a Financial Calculator as follows :

- $400,000  CF0

$325,000     CF1

$500,000    CF2

$400,000    CF3

$475,000    CF4

I/YR = 8%

Then, SHIFT NPV gives $996,267.41

Thus, Alpha's net present value (NPV) is $996,267.41.