Farmers Ltd. is considering a project that requires an initial investment of Sh.100,000,000 and is expected to 
generate cash flows of Sh.40,000,000 per year for 5 years. The cost of capital for the company is 8%. What is the 
net present value (NPV) of the project?
A.
Sh.15,443,500
B.
Sh.21,543,500
C.
Sh.59,708,500
D.
Sh.41,543,500

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

\[
NPV = \sum \left( \frac{CF_t}{(1 + r)^t} \right) - C_0
\]

Where:
- \( CF_t \) = Cash flow in year \( t \)
- \( r \) = Discount rate (cost of capital)
- \( C_0 \) = Initial investment
- \( t \) = Year of cash flow

### Given:
- Initial investment \( C_0 = \text{Sh.100,000,000} \)
- Annual cash flow \( CF = \text{Sh.40,000,000} \)
- Discount rate \( r = 8\% = 0.08 \)
- Project duration = 5 years

Let's calculate the NPV using the above formula.

\[
NPV = \sum_{t=1}^{5} \left( \frac{40,000,000}{(1 + 0.08)^t} \right) - 100,000,000
\]

We'll now compute the NPV step by step.The Net Present Value (NPV) of the project is approximately **Sh.59,708,401**, which matches option **C**.

Do you want more details or have any further questions?

Here are 5 related questions to expand on this:
1. How does the cost of capital affect the NPV of a project?
2. What happens to the NPV if the cash flows are not constant over time?
3. How does NPV help in comparing different investment projects?
4. What is the difference between NPV and Internal Rate of Return (IRR)?
5. Can a project with a negative NPV ever be considered for investment?

**Tip:** When comparing projects, the one with the highest positive NPV is generally the best financial choice, assuming similar risk profiles.

Farmers Ltd. is considering a project that requires an initial investment of Sh.100,000,000 and is expected to generate cash flows of Sh.40,000,000 per year for 5 years. The cost of capital for the company is 8%. What is the net present value (NPV) of the project? A. Sh.15,443,500 B. Sh.21,543,500 C. Sh.59,708,500 D. Sh.41,543,500

Calculate the Net Present Value (NPV) for Farmers Ltd.'s project with an initial investment of Sh.100,000,000 and expected cash flows of Sh.40,000,000 per year for 5 years, at a cost of capital of 8%. Understand the NPV formula, investment analysis, and how to evaluate project profitability.

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