O'Malley Inc. purchased an asset costing $90,000. Annual operating cash inflows are expected to be $20,000 each year for six years. No salvage value is expected at the end of the asset's life. Assuming O'Malley's cost of capital is 16 percent, what is the asset's net present value? (ignore income taxes)

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the annual cash inflows at the cost of capital (16%) and subtracting the initial investment. The NPV is negative, indicating the asset does not meet the required rate of return.