A firm estimates that it will receive cash flows from a new product of $1,000 in Year 1, $800 in Year 2, and $700 in Year 3. If a discount rate of 9% is assumed, into what range below will the NPV be?
A) Less than $2500
B) Between $2500 and $2800
C) Between $2800 and $3100
D) More than $3100

Question

Quizplus · Accepted Answer

The NPV is calculated by discounting each cash flow to its present value and summing them up. Using a 9% discount rate, the NPV is approximately $2,200, which falls in the range of less than $2500.

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