The capital budgeting project's net present value at an 18% required rate of return is <u>($4,200).</u>
<h3>What is the net present value?</h3>
The net present value represents the net discounted value of cash inflows after subtracting the present value of cash outflows.
The net present value can be determined by determining the present values of cash inflows and outflows and netting the two values.
<h3>Data and Calculations:</h3>
Required rate of return = 18%
Project period = 3 years
Year Cash Flows PV Factor Present Value
0 -$850,000 1 -$850,000 ($850,000 x 1)
1 $300,000 0.847 $254,100 ($300,000 x 0.847)
2 $400,000 0.718 $287,200 ($400,000 x 0.718)
3 $500,000 0.609 $304,500 ($500,000 x 0.609)
Net present value ($4,200)
Thus, the capital budgeting project's net present value at an 18% required rate of return is <u>($4,200)</u>.
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