Consider a project with a net investment of $40,000 and the following net cash flows: Annual Cash Flow Year 1 $25,000 Year 2 $36,000 Year 3 $8,000 If the company's cost of capital is 5%, what would be the net present value of the project?

Consider a project with a net investment of $40,000 and the following net cash flows: Annual Cash Flow Year 1 $25,000 Year 2 $36,000 Year 3 $8,000 If the company's cost of capital is 5%, what would be the net present value of the project?

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

Problem 1PS

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Question

Consider a project with a net investment of $40,000 and the following net cash flows:

Annual Cash Flow

Year 1	$25,000
Year 2	$36,000
Year 3	$8,000

If the company's cost of capital is 5%, what would be the net present value of the project?

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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