Cromwell Industries is considering a new project which will have costs,revenues,etc.as shown by the data above.If the cost of capital is 8.5%,what is the net present value (NPV)of this project?

Question

Quizplus · Accepted Answer

To calculate the NPV, we need to discount the cash flows by the cost of capital and subtract the initial investment. Using the NPV formula, we get:

NPV = -1000000 + (200000/1.085) + (250000/1.085^2) + (300000/1.085^3) + (350000/1.085^4) + (400000/1.085^5)

NPV = $199,300

Since the NPV is positive, this project is expected to generate a return higher than the cost of capital, which makes it a good investment. Therefore, the best choice is C.

Cromwell Industries Is Considering a New Project Which Will Have