Question

Yoga Center Inc. is considering a project that has the following cash flow and cost of capital (r) data. What is the project's NPV? Note that a project's expected NPV can be negative, in which case it will be rejected.r: 14.00%Year 0 1 2 3 4Cash flows −$1,200 $400 $425 $450 $475a. $41.25b. $45.84c. $50.93d. $56.59e. $62.88

Answer 1

Answer:

The correct answer is E.

Explanation:

Giving the following information:

Yoga Center Inc. is considering a project that has the following cash flow.

Year 0= -1200

Year 1= 400

Year 2= 425

Year 3= 450

Year 4= 475

Cost of capital= 14%

To calculate the Net Present Value we need to use the following formula:

NPV= -Io + ∑[Cf/(1+i)^n]

Cf= cash flow

For example:

Year 3= 450/(1.14^3)

NPV= $62.88