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26 August, 00:41

What is the net present value of a project that has an initial cash outflow of $7,670 and cash inflows of $1,280 in year 1, $6,980 in year 3, and $2,750 in year 4? the discount rate is 12.5 percent?

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  1. 26 August, 01:11
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    Net present value is the present value of future cash inflows discounted at the expected rate of return minus the initial investment.

    Initial cash outflow = $7670

    Cash inflow during Year 1 = $1280

    Cash inflow during Year 2 = $0

    Cash inflow during Year 3 = $6980

    Cash inflow during Year 4 = $2750

    Discount rate = 12.5%

    NPV = (1280/1.125^1) + (0) + (6980/1.125^3) + (2750/1.125^4) - 7670

    NPV = (1280/1.125) + 0 + (6980/1.424) + (2750/1.6) - 7670

    NPV = 1137.778+0+4902.277+1716.811-7670

    NPV=86.86
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