Calculate Net Present Value For A Project

Question

Cavalier Skilled Nursing Homes is considering setting up a new medical facility. Management estimates that it will cost $1.5 million to purchase the necessary equipment and renovate the building to support its long term care services. The projected net cash flows generated by the new facility over the next five years are given below:

                        Year 1                  -0-

                        Year 2             $380,000

                        Year 3             $400,000

                        Year 4             $420,000

                        Year 5             $440,000

Assuming a five year life and an 8% cost of capital, compute the net present value of this proposal.   On the merits of your net present value computation, should Cavalier Skilled Nursing Homes invest in this project? Explain your answer.

Summary

The question belongs to Finance and it discuses about calculating net present value for a project.

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