How much could NPV be affected by a worst-case scenario of 25 percent reduction from the $3 million in expected annual cash flows on a five-year project with 10 percent cost of capital? (use the values in dollar)
A)$2,843,090
B)$3,750,000
C)$4,578,825
D)$6,155,274

Question

Quizplus · Accepted Answer

The worst-case scenario reduces the annual cash flows by 25%, resulting in $2.25 million per year. The NPV is calculated using the formula for the present value of an annuity. The NPV of the reduced cash flows is $2,843,090.

How Much Could NPV Be Affected by a Worst-Case Scenario