A project with an initial cost of $314,000 will generate no returns in the first two years of operations, and operating cash flows of $150,000 per year in Years 3, 4, and 5. The required rate of return is 7%. To which amount is the net present value of the project closest?

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the future cash flows to the present value and subtracting the initial investment. The cash flows in Years 3, 4, and 5 are discounted at 7% and summed, then the initial cost is subtracted. The calculation results in an NPV closest to $29,830.

A Project with an Initial Cost of $314,000 Will Generate