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CW Co is appraising an opportunity to invest in some new machinery that has the following cash flows.
Initial investment $40,000
Net cash inflows for 5 years in advance $12,000 per annum
Decommissioning costs after 5 years $15,000
Ques – At a cost of capital of 10% what is the net present value of this project (to the nearest $100)?
I dont understand why are they adding +1 in 0-4 PV calculationThe inflows are in advance and are therefore from time 0 to 4.
Annuity factors give the PV for an annuity starting in 1 years time. So the 4 year annuity gives the PV of flows from 1 to 4.
The PV of a flow at time 0 is equal to the amount of the flow, and so the factor for 0 to 4 is 1 plus the 4 year annuity factor.
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