You are considering a project with an initial outlay of $12 million followed by 4 years of $4 million. What is the NPV if the discount rate is 8%?

Question

You are considering a project with an initial outlay of $12 million followed by 4 years of $4 million.   What is the NPV if the discount rate is 8%?

Quizplus · Accepted Answer

To calculate the NPV, we need to find the present value of cash flows and then subtract the initial investment.

PV of cash flows = 
($4 million / (1+0.08)^1) + ($4 million / (1+0.08)^2) + ($4 million / (1+0.08)^3) + ($4 million / (1+0.08)^4) = $13,248,400

NPV = PV of cash flows - initial investment = $13,248,400 - $12 million = $1,248,400

Therefore, the best choice is B.

You Are Considering a Project with an Initial Outlay of $12