Question

The Cyclone Golf Resorts is redoing its golf course at a cost of $2,744,320. It expects to generate cash flows of $1,223,445, $2,007,812, and $3,147,890 over the next three years. If the appropriate discount rate for the firm is 13 percent, what is the NPV of this project? (Do not round intermediate computations. Round final answer to nearest dollar.)

A) $7,581,072
B) $2,092,432
C) $4,836,752
D) $3,112,459

Answer 1

To calculate the NPV of the project, we need to discount the cash flows and subtract the initial cost. The NPV is $4,836,752.

Step-by-step explanation:

To calculate the net present value (NPV) of this project, we need to discount the cash flows to their present value and subtract the initial cost of the project.

Using the formula for NPV:

`NPV = CF_0 + CF_1/(1+r) + CF_2/(1+r)^2 + CF_3/(1+r)^3 - Initial Cost`

where CF0 is the initial investment, CF1, CF2, CF3 are the cash flows in each year, and r is the discount rate.

Plugging in the values, the NPV of this project is $4,836,752 (Option C).