Dickson Co.is considering a project that has the following cash flow and cost of capital (r) data.What is the project's NPV? Note that a project's expected NPV can be negative, in which case it will be rejected. $$\begin{array} { l c c c c c c }
\text { r: } & 12.00 \% & & & & \
\text { Year } & 0 & 1 & 2 & 3 & 4 & 5 \
\hline \text { Cash flows } & - \$ 1,100 & \$ 400 & \$ 390 & \$ 380 & \$ 370 & \$ 360
\end{array}$$
A) $250.15
B) $277.94
C) $305.73
D) $336.31
E) $369.94

Question

Dickson Co.is considering a project that has the following cash flow and cost of capital (r) data.What is the project's NPV? Note that a project's expected NPV can be negative, in which case it will be rejected. $$\begin{array} { l c c c c c c } 
\text { r: } & 12.00 \% & & & & \
\text { Year } & 0 & 1 & 2 & 3 & 4 & 5 \
\hline  \text { Cash flows } & - \$ 1,100 & \$ 400 & \$ 390 & \$ 380 & \$ 370 & \$ 360
\end{array}$$
A) $250.15
B) $277.94
C) $305.73
D) $336.31
E) $369.94

Quizplus · Accepted Answer

The NPV (Net Present Value) of a project is calculated by discounting the project's cash flows back to their present value using the project's cost of capital and then summing those values. The formula for NPV is: $$NPV = \sum \frac{CF_t}{(1 + r)^t}$$ where $CF_t$ is the cash flow at time $t$ and $r$ is the cost of capital (discount rate). For this project, with $r = 12\%$, the calculation is as follows: $$NPV = -\$1,100 + \frac{\$400}{(1 + 0.12)^1} + \frac{\$390}{(1 + 0.12)^2} + \frac{\$380}{(1 + 0.12)^3} + \frac{\$370}{(1 + 0.12)^4} + \frac{\$360}{(1 + 0.12)^5}$$ Calculating each term: $$NPV = -\$1,100 + \$357.14 + \$311.52 + \$269.41 + \$230.73 + \$195.13 = \$277.94$$ Therefore, the project's NPV is $277.94.

Dickson Co A) $25015 B) $277

Dickson Co A) $25015
B) $277