Managers at Terlingua Drilling identify a potential new drilling project. They estimate the following expected net cash flows if the project is adopted.
Year 0: ($1,250,000)
Year 1: $100,000
Year 2: $400,000
Year 3: $400,000
Year 4: $200,000
Year 5: $200,000
Year 6: $300,000
Year 7: $100,000
Suppose that the appropriate discount rate for this project is 12.5%, compounded annually.
Calculate the net present value for this proposed project.