Calculate the NPV for a project with an initial outflow of $12,000 followed an inflow of $6,000 year 1, $4,500 in year 2, $2,500 in year 3 and $1,000 in year 4 at a cost of capital of 6%.

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 net cash inflow during the period t, $i$ is the discount rate (cost of capital), and $C_0$ is the initial investment. For this project:- Initial outflow $C_0 = -$12,000$- Year 1 inflow = $6,000- Year 2 inflow = $4,500- Year 3 inflow = $2,500- Year 4 inflow = $1,000- Cost of capital $i = 6\%$NPV = $-$12,000 + \frac{$6,000}{(1+0.06)^1} + \frac{$4,500}{(1+0.06)^2} + \frac{$2,500}{(1+0.06)^3} + \frac{$1,000}{(1+0.06)^4}$Calculating each term:- $\frac{$6,000}{1.06} = $5,660.38$- $\frac{$4,500}{1.1236} = $4,007.55$- $\frac{$2,500}{1.191016} = $2,099.40$- $\frac{$1,000}{1.262477} = $791.89$Adding these up and subtracting the initial investment:NPV = $-$12,000 + $5,660.38 + $4,007.55 + $2,099.40 + $791.89 = $556.95$Therefore, the correct answer is D) $556.95.

Calculate the NPV for a Project with an Initial Outflow