Shannon Industries is considering a project, which has the following cash flows:
Time Cash Flow -
0?
1$2,000
23,000
33,000
41,500
The project has a payback of 2.5 years. The firm's cost of capital is 12 percent. What is the project's net present value NPV?
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A. B. C. D. E.B
First, find the missing t = 0 cash flow. If payback = 2.5 years, this implies t = 0 cash flow must be - $2,000 - $3,000 + (0.5) $3,000 = -$6,500. Enter the cash flows and the firm's cost of capital of 12%, then NPV = $765.91.