Use the table for the question(s)below.
-If the risk-free interest rate is 10%,then the NPV for Moe is closest to:
A)-$3.64 million.
B)$2.73 million.
C)$3.18 million.
D)$3.64 million.

Question

Use the table for the question(s)below. 
-If the risk-free interest rate is 10%,then the NPV for Moe is closest to:
A)-$3.64 million. 
B)$2.73 million. 
C)$3.18 million. 
D)$3.64 million.

Quizplus · Accepted Answer

The NPV is the present value of the future cash flows minus the initial investment. The present value of the future cash flows is calculated by multiplying each cash flow by the discount factor, which is the present value of $1 received at the end of the year. The discount factor is calculated by dividing 1 by (1 + r)^n, where r is the risk-free interest rate and n is the number of years. In this case, the risk-free interest rate is 10%, and the future cash flows are $1 million per year for 10 years. The present value of the future cash flows is $6.36 million. The initial investment is $3 million. Therefore, the NPV is $6.36 million - $3 million = $3.36 million.

Use the Table for the Question(s)below