A 50- year project has a cost of $500,000 and has annual cash flows of $100,000 in years 1-25, and $200,000 in years 26-50. The company's required rate is 8%. Given this information, calculate the NPV of the project.
A) $879,219
B) $779,219
C) $679,219
D) $579,219
E) $479,219

Question

Quizplus · Accepted Answer

The NPV (Net Present Value) of the project can be calculated using the formula for NPV, which involves discounting the future cash flows back to their present value and subtracting the initial investment. For the first 25 years, the annual cash flow is $100,000, and for the next 25 years, it is $200,000. The discount rate is 8%. The NPV calculation involves two parts: the present value of cash flows for the first 25 years and the present value of cash flows for the next 25 years. The formula for the present value of an annuity can be used for this purpose, and then the initial investment is subtracted from the sum of these two present values. The correct NPV, based on the given options, is $879,219, indicating that the calculations align with this value when correctly applying the NPV formula and the given discount rate.

A 50- Year Project Has a Cost of $500,000 and Has