Anderson Systems is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that if a project's projected NPV is negative,it should be rejected.
A)$265.65
B)$278.93
C)$292.88
D)$307.52
E)$322.90

Question

Anderson Systems is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that if a project's projected NPV is negative,it should be rejected. 
A)$265.65 
B)$278.93 
C)$292.88 
D)$307.52 
E)$322.90

Quizplus · Accepted Answer

To calculate the NPV, we need to discount each cash flow using the given WACC of 10%.

Year 0: -$900
Year 1: $300/(1+0.10) = $272.73
Year 2: $300/(1+0.10)^2 = $248.17
Year 3: $400/(1+0.10)^3 = $310.86
Year 4: $400/(1+0.10)^4 = $289.87

Total present value of cash inflows = $1,121.63
Total initial investment = $900

NPV = $1,121.63 - $900 = $221.63

Since the NPV is positive, the project should be accepted. The closest answer choice to this calculated value is A) $265.65.

Anderson Systems Is Considering a Project That Has the Following