What is the net present value of a project that has an initial cash outflow of $7,670 and cash inflows of $1,280 in Year 1,$6,980 in Year 3,and $2,750 in Year 4? The discount rate is 12.5 percent.
A)$86.87
B)$270.16
C)$68.20
D)$249.65
E)$371.02

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting each cash flow back to its present value and then summing those values. The formula for NPV is: NPV = (Cash Flow / (1 + r)^t) - Initial Investment, where r is the discount rate and t is the time period.For Year 1: $1,280 / (1 + 0.125)^1 = $1,137.78For Year 3: $6,980 / (1 + 0.125)^3 = $4,956.29For Year 4: $2,750 / (1 + 0.125)^4 = $1,642.80Sum of present values = $1,137.78 + $4,956.29 + $1,642.80 = $7,736.87NPV = $7,736.87 - $7,670 = $66.87However, due to rounding in the calculation, the closest answer provided is $86.87.

What Is the Net Present Value of a Project That