The initial investment of a project is £165,000.The annual cash flows for the four years are £48,000,£46,000,£56,000 and £68,000.Find the NPV of the project if the expected rate of return is 11%.

Question

Quizplus · Accepted Answer

To find the NPV of the project, we need to discount all of the cash flows to their present value and then subtract the initial investment. Using a financial calculator or spreadsheet program, we can find that the present values of the cash flows are:

Year 1: £43,243.24
Year 2: £37,442.23
Year 3: £41,983.64
Year 4: £45,231.98

To find the NPV, we add up the present values and then subtract the initial investment:

NPV = -£165,000 + £43,243.24 + £37,442.23 + £41,983.64 + £45,231.98
NPV = £2,900.09

Since the NPV is positive, the project is expected to generate a return that is greater than the expected rate of return, and therefore, it is a viable investment option. The correct answer is C.

The Initial Investment of a Project Is £165,000