Shields Company has gathered the following data on a proposed investment project:

(Ignore income taxes in this problem.)
-The net present value on this investment is closest to which of the following?

Question

Shields Company has gathered the following data on a proposed investment project:

(Ignore income taxes in this problem.)
-The net present value on this investment is closest to which of the following?

Quizplus · Accepted Answer

To calculate the net present value (NPV), we need to discount the cash inflows using the project's cost of capital. We can use the formula:
NPV = -Initial Investment + (Cash Inflow Year 1 / (1 + r)^1) + (Cash Inflow Year 2 / (1 + r)^2) + (Cash Inflow Year 3 / (1 + r)^3)
where r is the cost of capital.
In this case, the initial investment is $450,000. The cash inflows in each year are:
Year 1: $120,000
Year 2: $150,000
Year 3: $225,000
Assuming a cost of capital of 10%, we can calculate the NPV as follows:

NPV = -$450,000 + ($120,000 / (1 + 0.1)^1) + ($150,000 / (1 + 0.1)^2) + ($225,000 / (1 + 0.1)^3)
NPV = -$450,000 + $109,090.91 + $124,793.39 + $180,732.56
NPV = $64,616.86

The closest option to this value is C) $91,600. Therefore, C is the best choice.

Shields Company Has Gathered the Following Data on a Proposed