A firm estimates that it will receive cash flows from a new product of $25,000 in Year 1, $22,000 in Year 2, and $19,000 in Year 3. If a discount rate of 8% is assumed, what is the NPV of this product's cash flows?
A) $71,280
B) $57,092
C) $66,000
D) NPV cannot be determined from the information given

Question

Quizplus · Accepted Answer

To calculate the NPV, we need to discount each cash flow back to the present using the discount rate of 8%. 
NPV = -$What is the best choice(s) only with the explanation?25,000/(1+0.08)^1 + $22,000/(1+0.08)^2 + $19,000/(1+0.08)^3 
NPV = -$25,000/1.08 + $22,000/1.08^2 + $19,000/1.08^3 
NPV = -$23,148.15 + $18,751.20 + $14,735.97 
NPV = $10,338.02 
Therefore, the NPV of this product's cash flows is $10,338.02, which is closest to choice B, $57,092.

A Firm Estimates That It Will Receive Cash Flows from a New