A project will produce an operating cash flow of $7,300 a year for three years. The initial cash investment in the project will be $11,601. The net after-tax salvage value is estimated at $3,500 and will be received during the last year of the project's life. What is the net present value of the project if the required rate of return is 11%?

Question

Quizplus · Accepted Answer

The correct answer is A because the net present value of the project is $8,798.29. This is calculated by taking the present value of the operating cash flows and the salvage value, and then subtracting the initial investment. The present value of the operating cash flows is $18,295.67, and the present value of the salvage value is $2,572.62. The initial investment is $11,601.00. Therefore, the net present value is $8,798.29.

A Project Will Produce an Operating Cash Flow of $7,300