Sigma Ltd. wants to invest in a project that has an initial investment of $40,000. The project is expected to yield $25,000 every year for the next three years. If the expected rate of return is 15%, what is the Net Present Value (NPV) of this project?

The NPV of the project is $

Since the project yields $25,000 in each of the three years we can treat the $25,000 as an annuity for 3 years and discount it at 15% to find the Present Value.

We use the following formula for this:

[tex]PV_{Annuity} = C * \left ( \frac{1 -(1+r)^{-n}}{r} \right )[/tex]

Substituting the values we get,

[tex]PV_{Annuity} = 25000 * \left ( \frac{1 -(1+0.15)^{-3}}{0.15} \right )[/tex]

[tex]PV_{Annuity} = 25000 * \left ( 0.342483768}{0.15} \right )[/tex]

[tex]PV_{Annuity} = 25000 * 2.283225117[/tex]

[tex]PV_{Annuity} = 57080.62793[/tex]

Next, we calculate NPV as follows:

[tex]\mathbf{NPV = PV of cash flows - investment}[/tex]

[tex]\mathbf{NPV = 57080.63 - 40000 = USD 17,080.63}[/tex]

Sigma Ltd. wants to invest in a project that has an initial investment of $40,000. The project is expected to yield $25,000 every year for the next three years. If the expected rate of return is 15%, what is the Net Present Value (NPV) of this project? The NPV of the project is $

Respuesta :

Otras preguntas

Sigma Ltd. wants to invest in a project that has an initial investment of $40,000. The project is expected to yield $25,000 every year for the next three years. If the expected rate of return is 15%, what is the Net Present Value (NPV) of this project?

The NPV of the project is $