412.3
3. Your company is considering a project with the
following cash flows: an immediate investment of $150 million,
cash inflows of $60 million for 6 years (starting next year), and
an additional maintenance cash outflow of 10 million in year 4.
If your discount rate for this project is 12%, What is the
project's NPV? (2 pts)
First, use a cash flow diagram to organize the cash flows:
0 1 2 3 4 5 6 -150 60 60 60 +60 -10 60 60
The initial investment of $150 million is already in present value, the 6 inflows of 60 million can be treated as an annuity, and the outflow of 10 million in year 4 can be handled separately: