Turnbull Corp. is in the process of constructing a new plant at a cost of $30 million. It expects the project to generate cash flows of $13,000,000, $23,000,000, and 29,000,000 over the next three years. The cost of capital is 20 percent. What is the net present value of this project

The net present value of this project is $13,587,962.96

Explanation:

The Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows from a decision. A positive NPV indicates a profitable investment and a negative the opposite.

We can be work out the NPV of Turnbull Corp as follows

Present Value

Year 1 13000,000 * * (1.2^ (-1) = 10,833,333.3

Year 2 23,000,000 * 1.2^ (-2) = 15,972,222.22

Year 3 29,000,000 * 1.2^ (-3) = 16,782,407.41

Total PV of cash inflows 43,587,963.0

Less the PV of cash outflow (30,000,000)

Net Present Value (NPV) 13,587,962.96

The net present value of this project is $13,587,962.96