Gamma Company is considering an investment of $500,000 in a land development project. It will yield cash flows of $200,000 for 5 years. The company uses a discount rate of 9%. What is the net present value of the investment? Present value of annuity of $1:

Question

Quizplus · Accepted Answer

To calculate the net present value (NPV), we need to find the present value of each individual cash flow and then subtract the initial investment. 
Using the formula for present value of an annuity, we can calculate the present value of the cash flows to be $732,097. 
Then, we subtract the initial investment of $500,000 to get the NPV of $232,097. 
Therefore, the best choice is B, as it is the closest to our calculated NPV.

Gamma Company Is Considering an Investment of $500,000 in a Land