A proposed project requires an initial cash outlay of $49,000 for equipment and an additional cash outlay of $18,700 in Year 1 to cover.operating costs.During Years 2 through 4,the project will generate cash inflows of $42,500 a year.What is the net present value of this.project at a discount rate of 11.6 percent?
A)$26,343.72
B)$26,391.08
C)$25,810.33
D)$24,399.99
E)$23,602.18

Question

Quizplus · Accepted Answer

The net present value of the project is $26,343.72. This is calculated by taking the present value of the cash inflows and subtracting the present value of the cash outflows. The present value of the cash inflows is $42,500/(1.116^2) + $42,500/(1.116^3) + $42,500/(1.116^4) = $103,955.44. The present value of the cash outflows is $49,000 + $18,700/(1.116) = $65,601.72. Therefore, the net present value is $103,955.44 - $65,601.72 = $26,343.72.

A Proposed Project Requires an Initial Cash Outlay of $49,000