P&J expects to own a building for five years, then sell it for $1,500,000 net of taxes, sales commissions and other selling costs.P&J's cost of capital is 11%.How much will the sale of the building contribute to the NPV of the project?
A)$890,177
B)$1,351,351
C)$1,500,000
D)$2,527,587

Question

Quizplus · Accepted Answer

In order to determine the contribution of the sale of the building to the NPV of the project, we need to calculate the present value of the sale proceeds using P&J's cost of capital.

PV = FV / (1 + r)^n
PV = 1,500,000 / (1 + 0.11)^5
PV = 771,823.67

Therefore, the sale of the building will contribute $771,823.67 to the NPV of the project. Option A is the closest answer.

P&J Expects to Own a Building for Five Years, Then