Please solve the following question for Finance and step by step how to do it. A
ID: 2660131 • Letter: P
Question
Please solve the following question for Finance and step by step how to do it.
A proposed project will cost an estimated $2.2 billion to construct and will produce estimated OCF of $300 million a year for 15 years. At the end of 15 years, the factory will be torn down at an estimated TCF of -$900 million. Calculate the projects expected NPV using a discount rate of 12%.
NPV is $614,500
NPV is -$321,167
NPV is -$485,555
NPV is -$1,056,741
NPV is $614,500
NPV is -$321,167
NPV is -$485,555
NPV is -$1,056,741
Explanation / Answer
Hi,
Please find the answer sa follows:
Initial Investemnt = 2.2 billion
Annual Cash Inflows = 300 million
Final Year Cash Flow = -900 million
NPV = -2.2 + .3/(1+.12)^1 + .3/(1+.12)^2 + .3/(1+.12)^3 + .3/(1+.12)^4 + .3/(1+.12)^5 + .3/(1+.12)^6 + .3/(1+.12)^7 + .3/(1+.12)^8 + .3/(1+.12)^9 + .3/(1+.12)^10 + .3/(1+.12)^11 + .3/(1+.12)^12 + .3/(1+.12)^13 + .3/(1+.12)^14 + .3/(1+.12)^15 -.9/(1+.12)^15 = -.321167 or -321167
Option B (NPV is -$321,167) is the correct answer.
Thanks.