A project has an anticipated stream of annual net receipts of $1,000. Its life is 12 years. No salvage value is expected. What is the net present value of the project, if its price is $6,000 and the applicable discount rate is 12%?
A) 194.40
B) 1440.00
C) 6194.40
D) 7440.00
E) none of the above

Question

Quizplus · Accepted Answer

The net present value (NPV) of a project is the sum of the present values of all future cash flows, discounted at a given rate. In this case, the annual net receipts are $1,000, the life of the project is 12 years, the price is $6,000, and the applicable discount rate is 12%. The NPV is calculated as follows:NPV = -Price + Sum of present values of future cash flowsNPV = -$6,000 + $1,000 * (1 - (1 + 0.12)^-12) / 0.12NPV = -$6,000 + $1,000 * 6.3605NPV = $194.40

A Project Has an Anticipated Stream of Annual Net Receipts