Open Question: Is this the right way to find the NPV of this project?
Posted on 06. Feb, 2010 by Yahoo! Answers: Search for in Hot, Inane, Internet, Web, fcukin
Hi, This is not my home work. I am studying for an exam. I am just confused about this problem. A project will have free cash flows in one year of $180,000. Initial Investment is $100,000. The cost of capital is 20% and the risk free interest rate is 10%. What is the NPV? Is the answer: A) NPV= -100,000+(180,000)/1.30= 38461.538$ OR B) NPV= -100,000+(180,000)/1.20=50,000$ ? The thing is I do not know the interest rate to be taken. Should it be cost of capital+ risk free interest rate or just cost of capital or just risk free interest rate? Thanks for the help. Can you also provide the reasoning? Thanks.