Please show your work, and do not use excel. Thank you. A.) Suppose a project is
ID: 2788615 • Letter: P
Question
Please show your work, and do not use excel. Thank you.
A.) Suppose a project is expected to generate annual cash flow of $164333 next year and subsequent (annual) cash flows are expected to grow at 2.7 percent annually.forever. If project costs $560,000 and the cost of capital is 15.0 percent, calculate the net present value of the project.
B.) Suppose a project is expected to generate annual cash flow of $163513×1.25 next year, $163513×1.25×1.25 (i.e. 163513 × 1.25 squared) the year after, and the subsequent (annual) cash flows are expected to grow at 2.7 percent annually.forever. If project costs $560,000 and the cost of capital is 15.2 percent, calculate the net present value of the project.
Explanation / Answer
A)
Net present value = PV of cash inflows-PV of cash outflows
= $164,333/(15%-2.70%)-$560,000
= $1,336,040-$560,000
= $776,040