Compute the NPV for Project X with the cash flows shown as follows if the appropriate cost of capital is 9 percent.
$$\begin{array} { | l | c | c | c | c | c | c | }
\hline \text { Time: } & 0 & \mathbf { 1 } & \mathbf { 2 } & \mathbf { 3 } & \mathbf { 4 } & \mathbf { 5 } \
\hline \text { Cash flow: } & - \mathbf { 1 , 0 0 0 } & - \mathbf { 7 5 } & \mathbf { 1 0 0 } & \mathbf { 1 0 0 } & 0 & 2,000 \
\hline
\end{array}$$
A)(-$639.96)
B)$360.04
C)$392.44
D)$486.29

Question

Compute the NPV for Project X with the cash flows shown as follows if the appropriate cost of capital is 9 percent. 
$$\begin{array} { | l | c | c | c | c | c | c | } 
\hline \text { Time: } & 0 & \mathbf { 1 } & \mathbf { 2 } & \mathbf { 3 } & \mathbf { 4 } & \mathbf { 5 } \
\hline \text { Cash flow: } & - \mathbf { 1 , 0 0 0 } & - \mathbf { 7 5 } & \mathbf { 1 0 0 } & \mathbf { 1 0 0 } & 0 & 2,000 \
\hline
\end{array}$$
A)(-$639.96)
B)$360.04
C)$392.44
D)$486.29

Quizplus · Accepted Answer

Using the formula for NPV, where CF is the cash flow and r is the cost of capital:
NPV = -1000 + (-75)/(1+0.09) + 100/(1+0.09)^2 + 100/(1+0.09)^3 + 0 + 2000/(1+0.09)^5
NPV = -1000 -68.81 + 82.64 + 75.46 + 0 + 1190.15
NPV = $392.44
Therefore, the correct choice is C.

Compute the NPV for Project X with the Cash Flows