Your firm is considering an investment that will cost $920,000 today.The investment will produce cash flows of $450,000 in year 1,$270,000 in years 2 through 4,and $200,000 in year 5.The discount rate that your firm uses for projects of this type is 11.25%.What is the investment's net present value?
A) $540,000
B) $378,458
C) $192,369
D) $112,583

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the future cash flows to their present value and subtracting the initial investment. Using the given discount rate of 11.25%, the NPV is approximately $192,369.

Your Firm Is Considering an Investment That Will Cost $920,000