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A project has an initial cost of $55,000, expected net cash inflows of $10,000 per year for 12 years, and a cost of capital of 11%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round intermediate calculations. Round your answer to the nearest cent.

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facundobuzzetti

Answer:

NPV= $9,923.56

Step-by-step explanation:

Giving the following information:

Initial cost= -$55,000

Cash flows= $10,000

Cost of capital= 11%

To calculate the net present value, we need to use the following formula:

NPV= -Io + ∑[Cf/(1+i)^n]

First, we need to discount the cash flows:

PV= Cfn / (1+i)^n

Cf1= 10,000/1.11= 9,009.01

Cf2= 10,000/1.11^2= 8,116.22

Cf3= 10,000/1.11^3= 7,311.91

......

Cf12= 10,000/1.11^12= 2,858.41

Total PV= $64,923.56

Now, the NPV:

NPV= -55,000 + 64,923.56

NPV= $9,923.56

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