Warnock Inc.is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that a project's projected NPV can be negative,in which case it will be rejected.
A)$54.62
B)$57.49
C)$60.52
D)$63.54
E)$66.72

Question

Warnock Inc.is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that a project's projected NPV can be negative,in which case it will be rejected. 
A)$54.62 
B)$57.49 
C)$60.52 
D)$63.54 
E)$66.72

Quizplus · Accepted Answer

To calculate the project's NPV, we need to discount the cash flows using the weighted average cost of capital (WACC).

Year 0: - $1,000 (initial investment)
Year 1: $300 / (1 + 0.1) = $272.73
Year 2: $400 / (1 + 0.1)^2 = $330.58
Year 3: $500 / (1 + 0.1)^3 = $375.13
Year 4: $300 / (1 + 0.1)^4 = $225.79

NPV = -$1,000 + $272.73 + $330.58 + $375.13 + $225.79 = $204.23

Since the NPV is positive, the project should be accepted. Out of the answer choices, C) $60.52 is closest to our calculated NPV, so that would be the best choice.