How much could NPV be affected by a worst-case scenario of 25% reduction from the $3 million in expected annual cash flows on a 5-year project with 10% cost of capital?
A) $2,843,090
B) $3,750,000
C) $4,578,825
D) $6,155,274

Question

Quizplus · Accepted Answer

The worst-case scenario reduces the annual cash flows by 25%, resulting in $2.25 million per year. The NPV is calculated using the formula for the present value of an annuity, considering the reduced cash flows and the 10% cost of capital. The correct NPV reduction is $2,843,090.

How Much Could NPV Be Affected by a Worst-Case Scenario