Positive cash flows are expected to continue in perpetuity

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Reference no: EM131560363

A soap company is considering an investment of $5 million to introduce a new brand. The project will generate a cash flow of $1.2 million at year 1. The OCC is 12%.

a. Positive cash flows are expected to continue in perpetuity, but they will decline at a rate of 8% per year. Calculate the NPV of this project.

b. Suppose instead that cash áows will continue for 10 years only, still declining at 8% per year. Recalculate the NPV.

Reference no: EM131560363

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