Question

An office building is expected to create operating cash flows of $30,500 a year for three years, based on tenants' rental income. The purchase of the fixed assets for this building will cost $63,000. These assets will have no value at the end of the project. An additional $2,000 of net working capital will be required throughout the life of the project. Calculate the net present value of this project if the required rate of return is 14 percent

Answer 1

Answer:

The net present value of this project is $5,809.78.

Explanation:

Note: See the attached excel file for the calculation of net present value of this project.

In the attached excel file, the discounting factor is calculated as follows:

Discounting factor = 1 / (100% + required rate of return)^n

Where n is a particular year in focus.

From the attached excel file, we have:

Net present value = $5,809.78

Therefore, the net present value of this project is $5,809.78.

Download xlsx