A Project Costs $200,000, Produces Annual Cash Inflows of $20,000

question 69

Essay

A project costs $200,000, produces annual cash inflows of $20,000, and has a discount rate of 8%. Explain how you can quickly determine the difference in the NPV of the project if the cash inflows last only 30 years rather than 40 years. Show the calculations needed to determine the amount of the NPV difference.

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Definitions:

Probability Of Success

The likelihood of achieving a favorable outcome in a binomial setting or experiment.

Constant

A fixed value that does not change.

Binomial Distribution

A probability distribution expressing the probability of a fixed number of successes in a fixed number of trials, with only two possible outcomes.

Mean

The average of a set of numbers, calculated by dividing the sum of the numbers by the count of numbers.