A capacity alternative has an initial cost of $50,000 and cash flow of $20,000 for each of the next four years.If the cost of capital is 5 percent,what is the approximate net present value of this investment?
A)$20,920
B)$26,160
C)$49,840
D)$70,920
E)$106,990

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the future cash flows to the present value and subtracting the initial investment. The formula for NPV is: NPV = ∑ (Cash flow / (1 + r)^t) - Initial investment, where r is the discount rate and t is the time period. Calculating for each year and summing them gives approximately $20,920.

A Capacity Alternative Has an Initial Cost of $50,000 and Cash