A project has the following cash flows over the next 5 years: $1,000, $600, $300, $1,200 and $1,400. Assume all cash flows occur at the end of a year. The project requires an initial cash outlay of $2,900. The project's cost of capital is 8%. The NPV of the project equals ________.
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A. B. C. D.D
The discounted cash flow at the end of year N is obtained by dividing that year's cash flow by 1.08N, since the project's cost of capital is 8%. Using this, the discounted cash flows are:
$926, $514, $238, $882 and $953.
The present value of all the future cash flows = $(926 + 514 + 238 + 882 + 953) = $3,513. The NPV is then equal to $(3,513 - 2,900) = $613.