The net present value formula for one period is:
I. NPV = C0 + [C1/(1 + r)]; II) NPV = PV required investment; and
III. NPV = C0/C1
A) I only
B) I and II only
C) III only
D) None of the above

Question

Quizplus · Accepted Answer

The correct formula for net present value (NPV) for one period is:

NPV = C0 + [C1/(1 + r)]

where C0 is the cash inflow in the current period, C1 is the cash inflow in the following period, r is the discount rate, and the formula discounts the cash flows by dividing them by (1 + r).

Option II is also correct because NPV can also be expressed as the present value of the required investment. However, option III is incorrect because it does not include a discount factor and a required rate of return.

The Net Present Value Formula for One Period Is