This is the correct calculation of net present value a new piece of equipment that is expected to cost $200,000 at the time of purchase (Year 0) and returns $150,000 per year for three years, and a cost of capital of 10%.

Question

Quizplus · Accepted Answer

The NPV is calculated as the sum of the present values of the cash flows over the life of the project, discounted at the cost of capital. In this case, the NPV is calculated as follows:NPV = -200,000 + 150,000/(1+0.1)^1 + 150,000/(1+0.1)^2 + 150,000/(1+0.1)^3= -200,000 + 136,363.64 + 123,966.95 + 112,697.23= 72,927.82Since the NPV is positive, the project is considered to be a good investment.

This Is the Correct Calculation of Net Present Value a New