Calculate the net present value for an investment project with the following cash flows using a 12% cost of capital: $$\begin{array} { l l l l l }
\text { Year } & 0 & 1 & 2 & 3 \
\text { Net Cash Flow } & - \$ 100,000 & \$ 80,000 & \$ 80,000 & - \$ 30,000
\end{array}$$
A) $56,560
B) $30,000
C) $13,840
D) Cannot be determined with information given

Question

Calculate the net present value for an investment project with the following cash flows using a 12% cost of capital: $$\begin{array} { l l l l l } 
\text { Year } & 0 & 1 & 2 & 3 \
\text { Net Cash Flow } & - \$ 100,000 & \$ 80,000 & \$ 80,000 & - \$ 30,000
\end{array}$$
A) $56,560
B) $30,000
C) $13,840
D) Cannot be determined with information given

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting each cash flow back to its present value using the formula $$NPV = \sum \frac{C_t}{(1 + r)^t}$$ where $C_t$ is the cash flow at time $t$ and $r$ is the discount rate (12% or 0.12 in this case). For the given cash flows, the calculation is as follows:- Year 0: $\frac{-100,000}{(1 + 0.12)^0} = -\$100,000$- Year 1: $\frac{80,000}{(1 + 0.12)^1} = \$71,428.57$- Year 2: $\frac{80,000}{(1 + 0.12)^2} = \$63,798.19$- Year 3: $\frac{-30,000}{(1 + 0.12)^3} = -\$21,386.78$Adding these together gives the NPV: $-\$100,000 + \$71,428.57 + \$63,798.19 - \$21,386.78 = \$13,839.98$, which rounds to \$13,840.

Calculate the Net Present Value for an Investment Project with the Following