Capital investment project will require an initial outlay

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Reference no: EM131444233

A capital investment project will require an initial outlay of $55,000 and is expected to generate an after-tax net cash flow of $7,500 in one year. After-tax net cash flows are then expected to grow at a rate of “g” per year for 5 years, ending 6 years from today. In each year after that in perpetuity, after-tax net cash flows are expected to grow at a fixed rate of 1.5% per year. The project’s cost of capital is 21%. If the terminal value of the project at the end of year 6 is $53,486.08, what is the project’s NPV?

Note: Terminal value at the end of year 6 is the value at that time of the after-tax net cash flows that the project is expected to generate after that date.

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Reference no: EM131444233

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