Mr. Wills invested in a business that will generate $75,000 annual after-tax cash flow in years 0 and 1 and $90,000 annual after-tax cash flow in years 2 and 3. Compute the NPV of these cash flows at a 10% discount rate using Appendix A.

Question

Quizplus · Accepted Answer

The NPV (Net Present Value) calculation involves discounting future cash flows back to their present value using a specific discount rate (in this case, 10%). The formula for NPV is: NPV = (CF0 / (1+r)^0) + (CF1 / (1+r)^1) + (CF2 / (1+r)^2) + ... + (CFn / (1+r)^n), where CF is the cash flow in each period, r is the discount rate, and n is the period. For this scenario: NPV = $75,000 / (1+0.10)^0 + $75,000 / (1+0.10)^1 + $90,000 / (1+0.10)^2 + $90,000 / (1+0.10)^3. Calculating each term: $75,000 + $68,182 + $74,380 + $67,603 = $285,165. Since none of the provided choices match this calculation, the correct answer is D, None of these choices are correct.

Mr Wills Invested in a Business That Will Generate $75,000