If an agribusiness firm receives 10,000 USd each year forever, and i=0.10, then the NPV of this project equals:

Question

Quizplus · Accepted Answer

The NPV (Net Present Value) formula is:
NPV = (Cash flow / (1 + i)^n) - initial investment

As the cash flow is constant and received forever, we can use the formula for the present value of a perpetuity:

Present value of perpetuity = (Cash flow / i)

So in this case, the present value of the perpetuity would equal:

Present value of perpetuity = (10,000 / 0.10) = 100,000

As there is no initial investment mentioned, we can assume it to be zero.

Therefore, the NPV = Present value of perpetuity - Initial investment = 100,000 - 0 = 100,000.

So the correct answer is B) 100,000 USD.

If an Agribusiness Firm Receives 10,000 USd Each Year Forever