Compute the NPV for Project X and accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 9 percent. $$\begin{array} { l l l l l l l }
\text { Time: } & 0 & 1 & 2 & 3 & 4 & 5 \
\text { Cash flow: } & - 1000 & - 75 & 100 & 100 & 0 & 2000
\end{array}$$
A)-$639.96
B)$360.04
C)$392.44
D)$486.29

Question

Compute the NPV for Project X and accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 9 percent. $$\begin{array} { l l l l l l l } 
\text { Time: } & 0 & 1 & 2 & 3 & 4 & 5 \
\text { Cash flow: } & - 1000 & - 75 & 100 & 100 & 0 & 2000
\end{array}$$
A)-$639.96
B)$360.04
C)$392.44
D)$486.29

Quizplus · Accepted Answer

Using the formula for NPV:
NPV = -1000 - 75/(1+0.09)^1 + 100/(1+0.09)^2 + 100/(1+0.09)^3 + 0/(1+0.09)^4 + 2000/(1+0.09)^5
NPV = -1000 - 68.81 + 82.64 + 75.50 + 0 + 1278.58
NPV = $392.44

As the NPV is positive, we should accept the project.