A new project is expected to have the following free cash flows: Year 0: -$15 million; year 1: $5 million; Year 2: $4 million; Year 3: $3 million. After Year 3, its cash flows will be a perpetuity with a constant declining rate of 3% per year from $3 million for ever. For example, its Year 4 cash flow will be 3*(1-3%)=$2.91 million and its Year 5 cash flow will be 2.91*(1-3%)=$2.82 and so on. If the cost of capital is 14%, what is the project's NPV?
A new project is expected to have the following free cash flows: Year 0: -$15 million; year 1: $5 million; Year 2: $4 million; Year 3: $3 million. After Year 3, its cash flows will be a perpetuity with a constant declining rate of 3% per year from $3 million for ever. For example, its Year 4 cash flow will be 3*(1-3%)=$2.91 million and its Year 5 cash flow will be 2.91*(1-3%)=$2.82 and so on. If the cost of capital is 14%, what is the project's NPV?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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A new project is expected to have the following
Year 0: -$15 million; year 1: $5 million; Year 2: $4 million; Year 3: $3 million. After Year 3, its cash flows will be a perpetuity with a constant declining rate of 3% per year from $3 million for ever. For example, its Year 4 cash flow will be 3*(1-3%)=$2.91 million and its Year 5 cash flow will be 2.91*(1-3%)=$2.82 and so on. If the cost of capital is 14%, what is the project's
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