Question

What is the net present value of a project that has an initial cash outflow of $34,900 and the following cash inflows? The required return is 15.35 percent.
year cash flow
1 $12,500,
2 19,700,
3 0,
4 10,400.
A. -3,383.25
B. -2,784.62
C. - 2481.53
D. 52,311.08
E. 66,416.75

Answer 1

Answer:

NPV = $-3,383.25

Explanation:

The NPV is the difference between the PV of cash inflows and the PV of cash outflows. A positive NPV implies a good investment decision and a negative figure implies the opposite.  

NPV of an investment:  

NPV = PV of Cash inflows - PV of cash outflow  

PV of cash inflow =

$12,500, × 1.1535^(-1)  +  19,700, × 1.1535^(-2) + 0× 1.1535^(-3)  +  10,400.× 1.1535^(-2) = 31,516.7476

Initial,cost = 34,900

NPV = 31,516.7476  - 34,900 = -3,383.25

NPV = $-3,383.25