(Ignore income taxes in this problem.) Shields Company has gathered the following data on a proposed investment project:
-The net present value on this investment is closest to:

Question

(Ignore income taxes in this problem.) Shields Company has gathered the following data on a proposed investment project: 
-The net present value on this investment is closest to:

Quizplus · Accepted Answer

To calculate the net present value (NPV), we need to discount each year's cash flow to present value using a discount rate of 7%. 
Year 1: $100,000 / (1+0.07) = $93,458.04 
Year 2: $125,000 / (1+0.07)^2 = $109,598.73 
Year 3: $140,000 / (1+0.07)^3 = $116,531.85 
Year 4: $150,000 / (1+0.07)^4 = $118,959.77 
Year 5: $150,000 / (1+0.07)^5 = $112,511.87

Adding all present values, we get: 
$93,458.04 + $109,598.73 + $116,531.85 + $118,959.77 + $112,511.87 = $550,060.26

Since the initial investment is $458,400, we subtract that from the total present value to get the NPV: 
$550,060.26 - $458,400 = $91,660.26

Therefore, the closest answer choice is C) $91,600.

(Ignore Income Taxes in This Problem