Question 1 Windsor Ltd is considering a project, which will involve the following cash inflows and (out)flows: Year 0 1

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Question 1
Windsor Ltd is considering a project, which will involve the
following cash inflows and (out)flows:
Year
0
1
2
3
Cash flow
-400,000
40,000
300,000
300,000
If the cost of borrowing is 15% per annum what is the net
present value of the project?
Guide:
The NPV = PV (Inflows) – PV (Outflows or Cost)
We accept “deals” where the NPV > 0, and
We reject deals where the NPV < 0.
NPV=-IO+1nCFt(1+K)t
NPV = NET PRESENT VALUE
IO = INITIAL OUTLAY
K= COST OF CAPITAL or requirement rate of return
N= number of years