What is the NPV for a project if its cost of capital is 0 percent and its initial after-tax cost is $5,000,000 and it is expected to provide after-tax operating cash inflows of $1,800,000 in year 1, $1,900,000 in year 2, $1,700,000 in year 3, and $1,300,000 in year 4?
A) $1,700,000
B) $371,764
C) $137,053
D) $6,700,000

Question

Quizplus · Accepted Answer

When the cost of capital is 0 percent, the NPV is simply the sum of the cash inflows minus the initial investment. Summing the inflows gives $1,800,000 + $1,900,000 + $1,700,000 + $1,300,000 = $6,700,000. Subtracting the initial investment of $5,000,000 from this sum gives an NPV of $1,700,000.

What Is the NPV for a Project If Its Cost