Design Quilters is considering a project with the following cash flows: Initial Outlay = $126,000 Cash Flows: Year 1 = $44,000 Year 2 = $59,000 Year 3 = $64,000 If the appropriate discount rate is 11.5%,compute the NPV of this project.

Question

Quizplus · Accepted Answer

To calculate the NPV of the project, we need to discount each cash flow to its present value and then sum them up. Therefore,

NPV = -126,000 + 44,000/(1+0.115)^1 + 59,000/(1+0.115)^2 + 64,000/(1+0.115)^3

NPV = -$14,947 (rounded to the nearest dollar)

Since the NPV is negative, the project is not expected to generate a return higher than the required rate of return (11.5%). Therefore, it is not a good investment and should be rejected. The best choice is C because it is the only option that matches the calculated NPV.

Design Quilters Is Considering a Project with the Following Cash