Tosev Inc. is considering a project that will require an initial investment of $500,000. It is expected to generate a negative cash flow of $100,000 in the first year, a positive cash flow of $50,000 in the second year, a positive cash flow of $125,000 in the third year, and positive cash flows of $150,000 per year for 10 years thereafter. The cost of capital for the project is 15%. What is the NPV of this project?
answer
We have been provided with the information as follow
an initial investment of $500,000.
negative cash flow of $100,000 in the first year,
a positive cash flow of $50,000 in the second year,
a positive cash flow of $125,000 in the third year,
and positive cash flows of $150,000 per year for 10 years thereafter. The cost of capital for the project is 15%.
Now we will calculate NPV as follow
| Year | CASh Flow |
PV factor @ 15% |
Prasent Value |
| 0 | -500,000 | 1 | -500000 |
| 1 | -100,000 | 0.86957 | -86956.522 |
| 2 | 50,000 | 0.75614 | 37807.1834 |
| 3 | 125,000 | 0.65752 | 82189.5291 |
| 4 | 150,000 | 0.57175 | 85762.9868 |
| 5 | 150,000 | 0.49718 | 74576.5103 |
| 6 | 150,000 | 0.43233 | 64849.1394 |
| 7 | 150,000 | 0.37594 | 56390.556 |
| 8 | 150,000 | 0.32690 | 49035.2661 |
| 9 | 150,000 | 0.28426 | 42639.3618 |
| 10 | 150,000 | 0.24718 | 37077.7059 |
| 11 | 150,000 | 0.21494 | 32241.4834 |
| 12 | 150,000 | 0.18691 | 28036.0725 |
| 13 | 150,000 | 0.16253 | 24379.1935 |
| NPV | 28028.4664 |
NPV of the project is $ 28028.47
