Naomi has always wanted to open a cyber coffee shop and has made her cash flow projections. She estimates that it will cost her $225,000 to develop the project, and the cash flows for the next six years will be $45,000, $69,000, $125,000, $185,000, $189,000, and $200,000 respectively. If her cost of capital is 9.5%, what is the net present value and internal rate of return of her project

NPV= 333,629.97

Explanation:

Giving the following information:

Initial investment (Io)= $225,000

Cash flow:

Cf1= $45,000

Cf2= $69,000

Cf3= $125,000

Cf4= $185,000

Cf5= $189,000

Cf6= $200,000

Cost of capital= 9.5%

To calculate the net present value (NPV), we need to use the following formula:

NPV= -Io + ∑[Cf/(1+i)^n]

Cf1= 45,000/1.095= 41,095.89

Cf2= 69,000/1.095^2= 57,564.76

Cf3= 125,000/1.095^3= 95,206.73

Cf4= 185,000/1.095^4= 128,681.24

Cf5= 189,000/1.095^5= 120,058.03

Cf6= 200,000/1.095^6= 116,023.32

Total PV= $558,629.97

NPV= -225,000 + 558,629.07

NPV= 333,629.97

it's actually a very difficult task, due to not many people can make 2 million dollars in 2 years. besides that, to the not-so-realistic ideas, you can create a business. it could be practically anything, but make it into a business that isn't that known yet, you get me? also, lets not forget about stock market. that's where all the good stuff happens. use investments at the beginning and begin to raise up your business or whatever you're going to do. as this is a very non-realistic idea, it's still worth the shot!