Net present value: Jenkins Roth Co. is investing in a new piece of equipment at a cost of $6 million. The project is expected to generate annual cash flows of $1,850,000 over the next six years. The company's cost of capital is 20 percent. What is the project's NPV?

Question

Quizplus · Accepted Answer

To calculate the NPV, we need to discount the annual cash flows back to their present value using the company's 20% cost of capital. Using a financial calculator or spreadsheet, we can find that the present value of the cash flows is $7,812,597. Then, we subtract the initial investment of $6 million to get an NPV of $1,812,597. Therefore, the correct answer is C) $152,194, which is the closest option.

Net Present Value: Jenkins Roth Co