What is the net present value of a project that requires a net investment of $76,000 and produces net cash flows of $22,000 per year for 7 years? Assume the cost of capital is 15%.
A) $91,520
B) $15,520
C) $78,000
D) $167,474

Question

Quizplus · Accepted Answer

The net present value (NPV) of a project is calculated by discounting the future cash flows back to their present value and then subtracting the initial investment. Using the formula for NPV and a discount rate of 15%, the calculation for this project is: NPV = ($22,000 / 1.15) + ($22,000 / (1.15)^2) + ... + ($22,000 / (1.15)^7) - $76,000. This calculation results in an NPV of approximately $15,520, making option B the correct answer.

What Is the Net Present Value of a Project That