Injection Aluminium Mines, Inc. is considering adoption of a new project requiri
ID: 2739185 • Letter: I
Question
Injection Aluminium Mines, Inc. is considering adoption of a new project requiring a net investment of $10 million. The project is expected to generate 5 years of net cash inflows of $5 million per year. In the project's sixth, and final year, it is expected to have a net cash outflow of $1 million. What is the project's risk adjusted net present value? The company's cost of capital is 7% but projects of this nature are usually judged by a risk adjusted rate that is 5% higher than cost of capital.
A. about $8.52 million
B. about $8.00 million
C. about $7.52 million
D. none of the above
Explanation / Answer
The answer is A
Year Cash flow PVF @ 7% Present Value 0 -10 1 -10 1 5 0.89 4.46 2 5 0.80 3.99 3 5 0.71 3.56 4 5 0.64 3.18 5 5 0.57 2.84 6 1 0.51 0.51 8.53