What is the NPV of a project that costs $100,000 and returns $45,000 annually for three years if the opportunity cost of capital is 14 percent?
A)$3,397.57
B)$4,473.44
C)$16,100.00
D)$35,000.00

Question

Quizplus · Accepted Answer

To calculate the NPV, you need to discount each year's cash flow by the opportunity cost of capital and then subtract the initial cost. 
The formula is:
NPV = -Initial Cost + CF1/(1+r)^1 + CF2/(1+r)^2 + CF3/(1+r)^3
where CF is the cash flow and r is the opportunity cost of capital.
Using the numbers given in the problem:
NPV = -$100,000 + $45,000/(1+0.14)^1 + $45,000/(1+0.14)^2 + $45,000/(1+0.14)^3
NPV = -$100,000 + $39,473.68 + $31,774.59 + $25,786.24
NPV = $-3,965.49
Therefore, the best choice is B because it has the closest value to -$3,965.49, which is the calculated NPV

What Is the NPV of a Project That Costs $100,000