Diplomat.com is considering a project that has an up-front cost of $3 million and is expected to produce a cash flow of $500,000 at the end of each of the next 5 years. The project's cost of capital is 10%.
-Based on the above data, what is the project's net present value?
A) -$1,312,456
B) -$1,104,607
C) -$875,203
D) $105,999
E) $321,788

Question

Quizplus · Accepted Answer

The NPV is calculated by discounting the future cash flows at the project's cost of capital and subtracting the initial investment. The NPV is negative, indicating the project is not financially viable.

DiplomatCom Is Considering a Project That Has an Up-Front Cost