Homework SourseSongs Inc is considering a project that has the following ca
Song\'s Inc. is considering a project that has the following cash flow and WACC data. What is the project\'s NPV? Note that if a project\'s projected NPV is negative, it should be rejected.
| WACC: | 10.25% | |||||
| Year | 0 | 1 | 2 | 3 | 4 | 5 |
| Cash flows | ($1,000) | $200 | $300 | $400 | $300 | $500 |
Solution
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=200/1.1025+300/1.1025^2+400/1.1025^3+300/1.1025^4+500/1.1025^5
=$1236.71
NPV=Present value of inflows-Present value of outflows
=$1236.71-$1000
=$236.71(Approx).
