A 50- year project has a cost of $500,000 and has annual cash ﬂows of $100,000 in years 1-25, and $200,000 in years 26-50. The company's required rate is 8%. Given this information, calculate the
NPV of the project.
A) $879,219
B) $779,219
C) $679,219
D) $579,219
E) $479,219

Question

Quizplus · Accepted Answer

To calculate the NPV, we need to discount the annual cash flows back to their present value and subtract the initial cost of the project. We can use the formula:

NPV = -Initial Cost + (CF1 / (1+r)^1) + (CF2 / (1+r)^2) + ... + (CFn / (1+r)^n)

where CF = Cash Flow, r = Required Rate of Return, and n = Number of Years.

Plugging in the given values, we get:

NPV = -$500,000 + ($100,000 / 1.08^1) + ($100,000 / 1.08^2) + ... + ($100,000 / 1.08^25) + ($200,000 / 1.08^26) + ($200,000 / 1.08^27) + ... + ($200,000 / 1.08^50)

Solving for NPV using a financial calculator or spreadsheet software, we get:

NPV = $879,219

Therefore, the best choice is A, with an NPV of $879,219.

A 50- Year Project Has a Cost of $500,000 and Has