Use the following table $\text { Present Value of an Annuity of } 1$$\begin{array}{rrrr}
\text { Period } & 8 \% & 9 \% & 10 \%\
1 & .926 & .917 & .909 \
2 & 1.783 & 1.759 & 1.736 \
3 & 2.577 & 2.531 & 2.487
\end{array}$ A company has a minimum required rate of return of 8% and is considering investing in a project that costs $175000 and is expected to generate cash inflows of $70000 at the end of each year for three years. The net present value of this project is
A) $5390.
B) $35000.
C) $2170.
D) $180390.

Question

Quizplus · Accepted Answer

To calculate the net present value (NPV) of the project, we use the present value of an annuity formula. Given the 8% rate and a 3-year period, the present value factor is 2.577 from the table. The present value of the cash inflows is $70000 \times 2.577 = 180390$. Subtracting the initial investment of $175000 from this amount gives us the NPV: $180390 - 175000 = 5390$.

Use the Following Table Present Value of an Annuity of 1\text { Present Value of an Annuity of } 1 Present Value of an Annuity of 1

Use the Following Table $\text { Present Value of an Annuity of } 1$