Your company is considering a project that generates a revenue stream of $250 a year for four years.If the market interest rate is 8%,then the present value of this project is approximately

Question

Quizplus · Accepted Answer

We can use the present value formula:

PV = CF / (1+r)^n

where PV is the present value, CF is the cash flow per period, r is the discount rate, and n is the number of periods.

In this case, CF = $250 for each of 4 years, r = 8%, and n = 4. Plugging in these values, we get:

PV = $250 / (1+0.08)^1 + $250 / (1+0.08)^2 + $250 / (1+0.08)^3 + $250 / (1+0.08)^4

PV = $232.56 + $215.15 + $199.16 + $184.41

PV = $831.28

Therefore, the present value of the project is approximately $831.28. The closest answer choice is B, $828.03.

Your Company Is Considering a Project That Generates a Revenue