The NPV (net present value) of a cash stream that is equal to $75 per period for 5 periods with a rate of return of 15% per period would be
A) $261.37.
B) $289.12.
C) $312.74.
D) $322.44.

Question

Quizplus · Accepted Answer

We can use the formula for the present value of an ordinary annuity:

PV = PMT x ((1 - (1 + r)^(-n)) / r)

where PV is the present value, PMT is the payment per period, r is the rate of return per period, and n is the number of periods.

Substituting the given values:

PV = $75 x ((1 - (1 + 0.15)^(-5)) / 0.15)
PV = $75 x ((1 - 0.37689) / 0.15)
PV = $75 x 1.4961
PV = $112.21 (rounded to two decimal places)

Therefore, the NPV is:

NPV = PV - Initial Investment
Assuming an initial investment of $0:

NPV = $112.21

Therefore, the best choice is C, $312.74, as none of the options match the correct answer.

The NPV (Net Present Value) of a Cash Stream That