A project has a required return of 12.6 percent, an initial cash outflow of $42,100, and cash inflows of $16,500 in Year 1, $11,700 in Year 2, and $10,400 in Year 4. What is the net present value?
A) −$11,748.69
B) −$10,933.52
C) −$11,208.62
D) −$10,457.09
E) −$12,006.13

Question

Quizplus · Accepted Answer

Using the formula for Net Present Value (NPV), we get:
NPV = -Initial Cash Outflow + (Cash Inflow Year 1 / (1+Required Return)^1) + (Cash Inflow Year 2 / (1+Required Return)^2) + (Cash Inflow Year 4 / (1+Required Return)^4)
NPV = -42100 + (16500 / (1+0.126)^1) + (11700 / (1+0.126)^2) + (10400 / (1+0.126)^4)
NPV = -42100 + 14604.20 + 9328.57 + 715.85
NPV = -$11,748.69
Therefore, the best choice is A.

A Project Has a Required Return of 12