Ashanti Goldfields, wanted to undertake a project which will costs GH 30,000 now and is expected to generate year - end cash inflows of GH 9000, GH 8000, GH 7000, GH 6000, GH5000 and GH 4000 in years 1 through 6. The opportunity cost of capital may be assumed to be 10 percent.

Question

Julianna Andersen

Mathematics

24 February, 11:08

Ashanti Goldfields, wanted to undertake a project which will costs GH 30,000 now and is expected to generate year - end cash inflows of GH 9000, GH 8000, GH 7000, GH 6000, GH5000 and GH 4000 in years 1 through 6. The opportunity cost of capital may be assumed to be 10 percent.

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Phillip Buck · Answer 1

I strongly believe that NPV of the project is the requirement of this question:

NPV is - $486.82

Step-by-step explanation:

The NPV is the present value of the future cash flows from year 1 through year 6 minus the initial capital investment of GH30,000

The cash flow discount factor = 1 / (1+r) ^n

r is the opportunity cost of capital at 10%

n is the relevant year of each cash flow

NPV=-30,000+9000 / (1+10%) ^1+8000 / (1+10%) ^2+7000 / (1+10%) ^3+6000 / (1+10%) ^4+5000 / (1+10%) ^5+4000 / (1+10%) ^6=-$486.82

The project is not viable since NPV is negative