The net present value on this investment is closest to:
A) $76,750.
B) $80,000.
C) $91,600.
D) $400,000.

Question

Quizplus · Accepted Answer

To compute the net present value (NPV), we first need to calculate the present value of expected cash flows. Using a discount rate of 10%, the present value of cash inflows is:
PV(inflows) = $100,000/(1+0.1)^1 + $80,000/(1+0.1)^2 + $60,000/(1+0.1)^3 + $40,000/(1+0.1)^4 = $307,529.26
The present value of cash outflows is simply the initial investment of $200,000.
Therefore, NPV = PV(inflows) - PV(outflows) = $307,529.26 - $200,000 = $107,529.26
The closest answer choice to this value is C, $91,600, but that is not exact. The closest answer choice is actually A, $76,750, which is approximately $30,000 less than the calculated NPV.

The Net Present Value on This Investment Is Closest To