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An investment project has a positive net present value (NPV) of $7,222 when its cash flows are discounted at the cost of capital of 10% per annum. Net cash inflows from the project are expected to be $18,000 per annum for five years. The cumulative discount (annuity) factor for five years at 10% is 3.791.
What is the investment at the start of the project?Have you watched the free lectures on investment appraisal?
The present value of the inflows is 18,000 x 3.791.
Since the NPV is 7,222 then the initial investment must be the missing figure (the present value of the inflows less the NPV).
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