Artie's Soccer Ball Company is considering a project with the following cash flows: Initial outlay = $750,000
Incremental after-tax cash flows from operations Years 1-4 = $250,000 per year
Compute the NPV of this project if the company's discount rate is 12%.
A) $9,337
B) $7,758
C) $4,337
D) $2,534

Question

Quizplus · Accepted Answer

The NPV (Net Present Value) of the project can be calculated using the formula: NPV = $\sum \frac{C_t}{(1+r)^t} - C_0$, where $C_t$ is the cash flow at time $t$, $r$ is the discount rate, and $C_0$ is the initial investment. Here, $C_0 = $750,000$, $C_t = $250,000$ for $t = 1$ to $4$, and $r = 12\%$. Calculating the NPV: NPV = $\frac{250,000}{(1+0.12)^1} + \frac{250,000}{(1+0.12)^2} + \frac{250,000}{(1+0.12)^3} + \frac{250,000}{(1+0.12)^4} - 750,000$. This calculation results in an NPV of approximately $9,337, making option A correct.

Artie's Soccer Ball Company Is Considering a Project with the Following