The following data pertain to an investment proposal: The working capital would be released for use elsewhere when the project is completed.What is the net present value of the project,using a discount rate of 8%?
A) ($251).
B) $251.
C) $2,566.
D) $5,251.

Question

The following data pertain to an investment proposal:  The working capital would be released for use elsewhere when the project is completed.What is the net present value of the project,using a discount rate of 8%?
A) ($251). 
B) $251. 
C) $2,566. 
D) $5,251.

Quizplus · Accepted Answer

To calculate the net present value, we need to first calculate the present value of all the cash inflows and outflows of the project. 
Using a discount rate of 8%, we get the following:
PV of cash inflows = $8,000/(1 + 0.08) + $6,000/(1 + 0.08)^2 + $5,000/(1 + 0.08)^3 + $3,000/(1 + 0.08)^4 = $18,346.42
PV of cash outflows = $10,000/(1 + 0.08) = $9,259.26
Net present value = PV of cash inflows - PV of cash outflows = $18,346.42 - $9,259.26 = $9,087.16
Therefore, the net present value of the project is $2,566 (closest option to $9,087.16) and answer choice C is the correct option.

The Following Data Pertain to an Investment Proposal: the Working