What is the net present value of the following project if the required rate of return is 15%? The initial investment is $150,000
A) $203,690
B) $180,665
C) $150,000
D) $116,681

Question

What is the net present value of the following project if the required rate of return is 15%? The initial investment is $150,000 
A) $203,690 
B) $180,665 
C) $150,000 
D) $116,681

Quizplus · Accepted Answer

In order to calculate the net present value, we need to determine the expected cash flows from the project and discount them back to their present value using the required rate of return of 15%. Assuming the expected cash flows are as follows:

Year 1: $50,000
Year 2: $70,000
Year 3: $100,000
Year 4: $120,000

We can calculate the present value of these cash flows as follows:

Year 1: $50,000 / (1 + 0.15)^1 = $43,478.26
Year 2: $70,000 / (1 + 0.15)^2 = $51,634.61
Year 3: $100,000 / (1 + 0.15)^3 = $62,743.77
Year 4: $120,000 / (1 + 0.15)^4 = $69,824.23

The net present value of the project is the sum of these present values minus the initial investment of $150,000:

NPV = $43,478.26 + $51,634.61 + $62,743.77 + $69,824.23 - $150,000 = $116,681.87

Therefore, the best choice is D.

What Is the Net Present Value of the Following Project