(Ignore income taxes in this problem.)The following data pertain to an investment proposal: The net present value of the proposed investment is closest to:

Question

(Ignore income taxes in this problem.)The following data pertain to an investment proposal:  The net present value of the proposed investment is closest to:

Quizplus · Accepted Answer

To calculate the net present value (NPV), we need to discount each year's cash flow by the discount rate of 10% and then subtract the initial investment of $10,000.

Year 1 cash flow = $3,000 discounted by 10% = $2,727.27 
Year 2 cash flow = $5,000 discounted by 10% = $4,132.23 
Year 3 cash flow = $2,500 discounted by 10% = $1,806.15

NPV = -$10,000 + $2,727.27 + $4,132.23 + $1,806.15 = $-2,334.35

Since the NPV is negative, the proposed investment should be rejected. None of the answer choices are negative, but the closest to this value is Option B, $5,146. Therefore, the best choice is B. 11ea7998_5c3a_f95a_911b_554f164e668d_TB2627_00_TB2627_00

(Ignore Income Taxes in This Problem