SOLUTION: PT Company is considering investing in a particular project. The initial investment cost is $. 200,000. It is expected that the project may generate a benefit for 5 years as shown

Question 1107722: PT Company is considering investing in a particular project. The initial investment cost is $. 200,000. It is expected that the project may generate a benefit for 5 years as shown below:
Year Operating cost Annual cash inflow
0 200,000 --
1 15,000 $. 80,000
2 18,000 50,000
3 14,000 30,000
4 2,000 40,000
5 1,000 45,000
Additional information:- A discounting Rate is 9% and PV for year 0, 1, 3, 4, and 4, and 5 are 1, 0.92, 0.84, 0.77, 0.71 and 0.65 respectively
Required:
A. Calculate the Net percent Value of the project
B. If you are the project adviser of PT Company would you accept the project or reject? Why?

Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
the npv is -45420.

since this is negative, the project should not be pursued because it doesn't meet the minimum rate of return requirement of 9%.

when you do an npv study, the discount rate is the minimum rate of return required in order for the project to be considered profitable.

i used excel to perform the calculations.

tp is the time point.
cost is the operating cost.
rev is the cash flow in.
ncf is the net cash flow.
pvt is the present value factor used.
pvncf is the present value of the net cash flow.
npv is the net present value.

the net cash flow (ncf) is the cash flow in minus the operating cost.

the present value of the net cash flow (pcncf) is the net cash flow multiplied by the present value factor.

the net present value (npv) is the sum of the present value of the net cash flow.

$$$

RELATED QUESTIONS
4. Claire is considering investing in a new business. In the first year, there is a... (answered by ikleyn)

EVALUATING R&D PROJECTS AT WESTCOM SYSTEMS PRODUCTS COMPANY West-Com Systems Products... (answered by ikleyn)

3. Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a... (answered by ikleyn)

A company is considering investing on a particular project. The alternative projects... (answered by Theo)

b) In a certain undertaking the initial investment is TZS 1,000,000,000. Expected... (answered by Theo)

Cricket World Cup (CWC) is considering a project proposal which requires an initial... (answered by CPhill)

A company is considering implementing an investment opportunity in Dodoma. To identify... (answered by ikleyn)

A company invests in a project and it has been estimated that after x months of running,... (answered by greenestamps)