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Calculating the Net Present Value (NPV)

✔ https://StudyForce.com ✔ https://Biology-Forums.com ✔ Ask questions here: https://Biology-Forums.com/Ask When deciding if a transaction will be profitable over the long term, businesses routinely calculate the net present value (NPV) to determine which projects are worth investing in. The NPV is calculated by negating the costs upfront and adding to it the PV of all future cashflows, as in: NPV = −cost + PV (of future cash flows) A good project is one where the upfront cost is less than its financial value, implying the business acquired the project at a favorable price. On the other hand, a bad project has a cost higher than its financial value, indicating the business overpaid and diminished its overall return on investment. All company's need to select projects that earn at least the cost of capital. Q. Suppose a company is considering building a new plant that will cost $11 million. If the plant is expected to generate cash flows of $1.9 million per year for 10 years, calculate the NPV assuming the cost of capital is 9% annually.