Music Company is considering investing in a new project.The project will need an initial investment of $2,400,000 and will generate $1,200,000 (after-tax)cash flows for three years.Calculate the NPV for the project if the cost of capital is 15%.
A)$169,935
B)$1,200,000
C)$339,870
D)$125,846

Question

Quizplus · Accepted Answer

To calculate NPV, we need to discount the cash flows by the cost of capital. 
Year 1: $1,200,000 / (1 + 0.15)^1 = $1,043,481.48
Year 2: $1,200,000 / (1 + 0.15)^2 = $905,168.54
Year 3: $1,200,000 / (1 + 0.15)^3 = $785,464.48
NPV = -$2,400,000 + $1,043,481.48 + $905,168.54 + $785,464.48
NPV = $333,114.50
Therefore, the correct choice is C), as it has the closest NPV calculation value.

Music Company Is Considering Investing in a New Project