A project has an initial cash outlay of $16,500. Cash inflows are $5,200 in year 1, $6,800 in year 2, and $8,100 in year 3. What is the net present value if an 8.30% discount rate is applied to this project?
A) $333.33
B) $466.04
C) $475.88
D) $574.76
E) $601.13

Question

Quizplus · Accepted Answer

The net present value is the sum of the present values of the cash inflows minus the initial cash outlay. The present value of a cash inflow is the amount of money that would have to be invested today at the discount rate to grow to the amount of the cash inflow at the end of the period.The present value of the cash inflows is:PV = $5,200 / (1 + 0.083)^1 + $6,800 / (1 + 0.083)^2 + $8,100 / (1 + 0.083)^3PV = $5,200 / 1.083 + $6,800 / 1.173 + $8,100 / 1.269PV = $4,799.25 + $5,803.07 + $6,370.53PV = $16,972.85The net present value is:NPV = PV - Initial cash outlayNPV = $16,972.85 - $16,500NPV = $472.85The correct answer is C: $475.88.

A Project Has an Initial Cash Outlay of $16,500