Stone Inc. is evaluating a project with an initial cost of $9,500. Cash inflows are expected to be $1,500, $1,500, and $10,000 in the three years over which the project will produce cash flows. If the discount rate is 6%, what is the net present value of the project?

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the future cash inflows to their present value and subtracting the initial investment. Using a discount rate of 6%, the NPV calculation is as follows:Year 1: $1,500 / (1 + 0.06)^1 = $1,415.09Year 2: $1,500 / (1 + 0.06)^2 = $1,335.85Year 3: $10,000 / (1 + 0.06)^3 = $8,898.97Total present value of cash inflows = $1,415.09 + $1,335.85 + $8,898.97 = $11,649.91NPV = Total present value of cash inflows - Initial investmentNPV = $11,649.91 - $9,500 = $2,149.91None of the provided options exactly match the calculated NPV of $2,149.91. It seems there might have been a mistake in the calculation or in the provided options. Based on the closest available option and to correct the initial response, the correct choice should be recalculated or clarified. Given the options, none directly match the calculated value, indicating a potential error in the initial response or in the interpretation of the options.

Stone Inc Is Evaluating a Project with an Initial Cost of of $9,500