Dickson Co. is considering a project that has the following cash flow and cost of capital (r) data. What is the project's NPV? Note that a project's expected NPV can be negative, in which case it will be rejected.
A) $250.15
B) $277.94
C) $305.73
D) $336.31
E) $369.94

Question

Dickson Co. is considering a project that has the following cash flow and cost of capital (r) data. What is the project's NPV? Note that a project's expected NPV can be negative, in which case it will be rejected. 
A) $250.15 
B) $277.94 
C) $305.73 
D) $336.31 
E) $369.94

Quizplus · Accepted Answer

To calculate the NPV, we need to find the present value of all cash flows discounted at the cost of capital (r).

NPV = -1000 + (40/(1+r)) + (300/(1+r)^2) + (400/(1+r)^3)

Using the trial-and-error method, we can find that at r=12%, NPV is closest to $277.94, which is positive. Therefore, the project should be accepted.