Suppose you make a $5,000 investment that will return $3,000 in year 2 and another $3,500 in year 4.With an interest rate of 4.5%,what is the NPV of this project?
A) $247.34
B) $682.16
C) $1,500.00
D) $2,162.50

Question

Quizplus · Accepted Answer

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

- Year 0: -$5,000 (initial investment) 
- Year 2: $3,000 / (1 + 0.045)^2 = $2,674.78 
- Year 4: $3,500 / (1 + 0.045)^4 = $2,182.42

NPV = -$5,000 + $2,674.78 + $2,182.42 = $682.16

Therefore, the best choice is B.

Suppose You Make a $5,000 Investment That Will Return $3,000