CK Corporation can invest $100,000 in a project.After taxes, the project is expected to generate $40,000 of net income the first year and $75,000 of net income the second year.If the company uses a 10 percent discount rate to evaluate projects, what is the project's net cash flow?
A)$15,000
B)$1,690
C)($1,690)
D)($1,315)

Question

Quizplus · Accepted Answer

The project's net cash flow is calculated by discounting the net income for each year and subtracting the initial investment. The present value of $40,000 in year 1 is $36,364 and $75,000 in year 2 is $61,983. The total present value is $98,347. Subtracting the initial investment of $100,000 results in a net cash flow of ($1,690).

CK Corporation Can Invest $100,000 in a Project