Homework Sourse1 Compute the NPV statistic for Project Y given the followin
1. Compute the NPV statistic for Project Y given the following cash flows and if the appropriate cost of capital is 12 percent.
Project Y
Time
0
1
2
3
4
5
Cash Flow
–$
10,000
$
3,000
$
4,000
$
1,000
$
2,000
$
500
A. 18,133.88
B. -1,366.99
C. -1,539.14
D. -1,866.12
| Time | 0 | 1 | 2 | 3 | 4 | 5 | |||||||||||||||||
| Cash Flow | –$ | 10,000 | $ | 3,000 | $ | 4,000 | $ | 1,000 | $ | 2,000 | $ | 500 | |||||||||||
Solution
The Net Present Value [NPV] of the Project Y is “D. - $1,866.12”
Net Present Value [NPV] = Present Value of Annual cash flows – Initial Investment
= [$3,000 / (1.12)1] + [$4,000 / (1.12)2] + [$1,000 / (1.12)3] + [$2,000 / (1.12)4] + [$5,000 / (1.12)5] - $10,000
= [$2,678.57 + 3,188.78 + 711.78 + 1,271.04 + 283.71] - 10,000
= $8,133.88 – 10,000
= -$1,866.12 [Negative NPV]
