Suppose a project requires an initial investment of $10,000 and it will yield $1,500 for 8 years.The discount rate is 10%.What is the NPV of the project and should we accept or reject it?

Question

Quizplus · Accepted Answer

The NPV (Net Present Value) is calculated using the formula: NPV = $\sum \frac{R_t}{(1+i)^t} - C_0$, where $R_t$ is the cash inflow at time t, $i$ is the discount rate, and $C_0$ is the initial investment. For this project, $R_t = $1,500$, $i = 10\%$, and $C_0 = $10,000$. Calculating the NPV for 8 years yields a negative value, indicating the project's returns do not cover the initial investment plus the desired return rate of 10%. Therefore, the project should be rejected.

Suppose a Project Requires an Initial Investment of $10,000 and It