The product design costs are $75,000. The following table shows the projected cash in-flows. Assume a 4-year lifespan.

-Calculate the total net present value for the project using a discount rate of 9%.
A)$51,000.00
B)$75,000.00
C)$9,078.37
D)$46,788.99
E)Do not have enough information to compute

Question

The product design costs are $75,000. The following table shows the projected cash in-flows. Assume a 4-year lifespan.
 
-Calculate the total net present value for the project using a discount rate of 9%.
A)$51,000.00 
B)$75,000.00 
C)$9,078.37 
D)$46,788.99 
E)Do not have enough information to compute

Quizplus · Accepted Answer

The correct answer is C because the net present value is calculated by summing the present value of each cash flow over the life of the project. The present value of each cash flow is calculated by dividing the cash flow by (1 + discount rate)^n, where n is the number of years from the present. In this case, the discount rate is 9% and the cash flows are as follows:Year 0: -$10,000Year 1: $15,000Year 2: $20,000Year 3: $25,000The present value of each cash flow is as follows:Year 0: -$10,000 / (1 + 0.09)^0 = -$10,000Year 1: $15,000 / (1 + 0.09)^1 = $13,761.46Year 2: $20,000 / (1 + 0.09)^2 = $17,439.41Year 3: $25,000 / (1 + 0.09)^3 = $20,634.32The total net present value is the sum of the present values of each cash flow, which is $9,078.37.

The Product Design Costs Are $75,000