A firm estimates the two cash flows of the project in the next two years to be $100,00 and $200,000, consecutively. If the initial investment is $200,000 and the risk-adjusted discount rate is 10%, what is the approximate net present value of the project?

Question

Quizplus · Accepted Answer

The net present value (NPV) of a project is the sum of the present values of all future cash flows, minus the initial investment. In this case, the initial investment is $200,000, and the future cash flows are $100,000 and $200,000. The risk-adjusted discount rate is 10%.The present value of the first cash flow is $100,000 / (1 + 0.10)^1 = $90,909.09. The present value of the second cash flow is $200,000 / (1 + 0.10)^2 = $163,636.36. The NPV of the project is $90,909.09 + $163,636.36 - $200,000 = $54,545.45.

A Firm Estimates the Two Cash Flows of the Project