ABC Company in considering a loss control investment.The project will cost $100,000.It will generate an after-tax net cash flow of $60,000 one year after investment and an after-tax net cash flow of $60,000 two years after investment.The present value of $1 received one year from today assuming a 6 percent rate is .9434.The present value of $1 received two years from today assuming a 6 percent interest rate is .8900.Assuming a discount rate of 6 percent,what is the net present value (NPV)of this project?
A)$10,004
B)$13,195
C)$16,604
D)$20,000

Question

Quizplus · Accepted Answer

The correct answer is A. The net present value (NPV) of this project is $10,004. This is calculated by taking the present value of the after-tax net cash flows and subtracting the initial investment. The present value of the after-tax net cash flow one year from today is $60,000 x 0.9434 = $56,604. The present value of the after-tax net cash flow two years from today is $60,000 x 0.8900 = $53,400. The total present value of the after-tax net cash flows is $56,604 + $53,400 = $110,004. The net present value is $110,004 - $100,000 = $10,004.

ABC Company in Considering a Loss Control Investment