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5) The Blueberry Company is considering a project which will cost $424 initially. The project will...

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Finance

5) The Blueberry Company is considering a project which willcost $424 initially. The project will not produce any cash flowsfor the first 3 years. Starting in year 4, the project will producecash inflows of $454 a year for 5 years. This project is risky, sothe firm has assigned it a discount rate of 15.4 percent. What isthe net present value?

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3.9 Ratings (525 Votes)

Computation of net present value
i ii iii iv=ii*iii
year Cash flow PVIF @ 15.4% present value
0 -424     1.0000       (424.00)
1 0     0.8666                 -  
2 0     0.7509                 -  
3 0     0.6507                 -  
4 454     0.5639         256.00
5 454     0.4886         221.83
6 454     0.4234         192.23
7 454     0.3669         166.58
8 454     0.3179         144.35
        556.98
Therefore NPV =     556.98

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Transcribed Image Text

5) The Blueberry Company is considering a project which willcost $424 initially. The project will not produce any cash flowsfor the first 3 years. Starting in year 4, the project will producecash inflows of $454 a year for 5 years. This project is risky, sothe firm has assigned it a discount rate of 15.4 percent. What isthe net present value?

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