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,the net present value of this investment is:
A)greater than $80,000 but less than $130,000.
B)greater than $130,000.
C)less than $30,000.
D)impossible to calculate,because no interest rate is given.
E)impossible to calculate,because variable costs are not known.

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the future cash flows at the cost of capital and subtracting the initial investment. The NPV is less than $30,000.

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