Net present value: A project costs $3,250,000. The project is expected to generate annual cash flows of $1,225,000 for the next five years. If the company's required rate of return is 10 percent, what is the NPV of this project?

To calculate the **Net Present Value (NPV)** of the project, we use the following formula:

\[
\text{NPV} = \sum_{t=1}^{n} \frac{CF_t}{(1 + r)^t} - C_0
\]

Where:
- $ CF_t $ = Cash flow in year $ t $
- $ r $ = Discount rate (required rate of return)
- $ t $ = Year (from 1 to $ n $)
- $ C_0 $ = Initial cost of the project
- $ n $ = Number of years

### Given:
- Initial project cost $ C_0 = 3,250,000 $
- Annual cash flows $ CF_t = 1,225,000 $ for $ t = 1 $ to $ 5 $
- Discount rate $ r = 10\% $ or $ 0.10 $
- $ n = 5 $ years

Now, we calculate the NPV by discounting the cash flows for each year:

\[
\text{NPV} = \left( \frac{1,225,000}{(1 + 0.10)^1} \right) + \left( \frac{1,225,000}{(1 + 0.10)^2} \right) + \left( \frac{1,225,000}{(1 + 0.10)^3} \right) + \left( \frac{1,225,000}{(1 + 0.10)^4} \right) + \left( \frac{1,225,000}{(1 + 0.10)^5} \right) - 3,250,000
\]

Let's compute this step by step.

Learn how to calculate the net present value (NPV) for a project costing $3,250,000 with annual cash flows of $1,225,000 over 5 years. The required rate of return is 10%. This problem demonstrates key financial concepts such as NPV, discounting cash flows, and the time value of money.

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