The Quick-Start Company has the following pattern of potential cash flows with its planned investment in a new cold weather starting system for fuel injected cars. If the company has a discount rate of 17%,what is the value closest to time 1 net present value?

Question

Quizplus · Accepted Answer

The correct answer is A because the net present value at time 1 is €48.6 million. This is calculated by taking the present value of each cash flow and then subtracting the initial investment. The present value of each cash flow is calculated by dividing the cash flow by (1 + discount rate)^time. The initial investment is €100 million. So, the net present value at time 1 is:€48.6 million = (€10 million / (1 + 0.17)^1) + (€20 million / (1 + 0.17)^2) + (€30 million / (1 + 0.17)^3) + (€40 million / (1 + 0.17)^4) - €100 million

The Quick-Start Company Has the Following Pattern of Potential Cash