Question
XYZ Co. is considering a new project. They have estimated that the project will cost $7000 initially. Cash flows from increased sales will be $1600
XYZ Co. is considering a new project. They have estimated that the project will cost $7000 initially. Cash flows from increased sales will be $1600 the first year. These cash flows will increase by 10 percent per year. The project will finish six years from now. Assume the initial cost is paid now and all revenues are received at the end of each year. All cash flows have already considered the inflation rate.
If the company's investors require a 10 percent real return for such an investment and the inflation rate is expected to be 3% per year. What is the NPV of the project?
Select one:
a.
$879.55
b.
$821.37
c.
$835.61
d.
$863.25
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started