Net present value is being used to break the tie among four otherwise equal projects.If the interest rate is 4%,which of these anticipated four-year flows would yield the greatest net present value?
A)$10,000 in year 1;$11,000 in year 2;$12,000 in year 3;and $13,000 in year 4
B)$13,000 in year 1;$12,000 in year 2;$11,000 in year 3;and $10,000 in year 4
C)$10,000 in year 1;$10,000 in year 2;$13,000 in year 3;and $13,000 in year 4
D)$11,000 in year 1;$11,000 in year 2;$12,000 in year 3;and $12,000 in year 4

Question

Quizplus · Accepted Answer

The net present value (NPV) is higher when cash flows are received earlier, as they can be reinvested sooner. Option B, with the highest cash flows in the earliest years, would yield the greatest NPV at a 4% interest rate.

Net Present Value Is Being Used to Break the Tie