Pear Computer Corp.plans to introduce a new model called the Bartlett,whose sales are expected to grow rapidly until the computer becomes obsolete in five years.Net cash inflows to be realized at the end of the first year are $1 million,and they are expected to increase $1 million per year for each of the remaining 4 years.Cash outflows for production expenses are $3.5 million today and an additional $1.5 million at the end of the second year to increase capacity.If Pear's cost of capital is 10%,what is the project's NPV? Round to nearest whole dollar amount.
A) $9,412,700
B) $5,912,919
C) $6,173,452
D) $5,123,936
E) $8,998,418

Question

Quizplus · Accepted Answer

NPV = 11ea7fdb_fbe0_7d5d_a768_ff574aa64ed4_TB2902_11 11ea7fdb_fbe0_7d5e_a768_b79f7fef6aee_TB2902_11 - Initial Investment
NPV = 11ea7fdb_fbe0_7d5f_a768_37b2992ec690_TB2902_11 + 11ea7fdb_fbe0_7d60_a768_4398ec8a910d_TB2902_11 + 11ea7fdb_fbe0_7d61_a768_3de3430d0d28_TB2902_11 + 11ea7fdb_fbe0_a472_a768_2d65ae7d68ff_TB2902_11 + 11ea7fdb_fbe0_a473_a768_7f2e96933213_TB2902_11 - 3,500,000 = $5,912,918.89
Using a financial calculator: CF0 = -3,500,000, C01 = 1,000,000, F01 = 1, C02 = 500,000, F02 = 1, C03 = 3,000,000, F03 = 1,
C04 = 4,000,000, F04 =1, C05 = 5,000,000, F05 = 1, NPV I = 10, CPT NPV = $5,912,918.89