A
politician has been approached by a co-aspirant to step down for him and be
given a sum of $2.5m which can be invested in a contract project with the
following inflows
Year
|
Cash flows
|
1
|
$200,000.00
|
2
|
$500,000.00
|
3
|
$800,000.00
|
4
|
$1,000,000.00
|
A
10% return is proposed per annum on this project. Calculate the NPV of the
project and advise if the project should be undertaken.
Year
|
Cash
flows
|
DCF
@ 10%
|
Present Values
|
1
|
200,000
|
0.9091
|
181,818
|
2
|
500,000
|
0.8264
|
413,223
|
3
|
800,000
|
0.7513
|
601,052
|
4
|
1,000,000
|
0.6830
|
683,013
|
1,879,107
|
|||
Less Capital Outlay
|
(2,500,000)
|
||
Negative NPV
|
(620,893)
|
||
Advice
Since the project has a negative net present value, it should not be accepted.
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