Problem 8-9 A certain investment requires an initial outlay of $12 million and subsequently produces annual cash inflows of $1.4 million in perpetuity. A firm evaluating this investment uses a discount rate of 10%. What is the investment’s NPV? What is the EVA each period? What is the present value of the stream of EVAs? Solution a.The NPV = PV of future cash flows - inital investment PV of future cash flows = 1,400,000 *(1/0.10) = 14,000,000 Inital outlay = 12,000,000 Hence NPV = 14,000,000 -12,000,000 = 2,000,000 b. EVA for each period = 1,400,000 - (0.10*12,000,000) = 200,000 = 0.2 Million c. EVA of the stream = 0.2/0.10 = 2 Miilion = 2,000,000.