Question

shannon industries is considering a project which has the following cash flows: year cash flow 0 ??? 1 $2000 2 $3000 3 $3000 4 $1500 the project has a payback period of 2.5 years and the firm's cost of capital is 12 percent. what is the project's net present value (i.e., npv)?

Answer 1

The NPV value of the project will be 765.91

What is NPV?

Net present value can be defined as the present value of the cash flows at the required rate of return of your project compared to your initial investment.

Advantage of NPV includes :

• Incorporates time value of money
• Accuracy depends on the quality of inputs.
• Simple way to determine if a project delivers value.

In the above case,

Initial cost = 2000+3000+3000*0.5 = 6500

NPV  = -6500 + 2000/1.12 + 3000/1.12^2 + 3000/1.12^3 + 1500/1.12^4 = 765.91

Hence, The NPV value will be 765.91

To know more about Net present Value from the given link

https://brainly.com/question/17185385

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