A project has an anticipated stream of annual net receipts of $25,000. Its life is 10 years. No salvage value is expected at the end of the 10 years. Compute the net present value of the project, if its price is $150,000 and the applicable discount rate is 8%.
A) -138,420.00
B) -96,027.50
C) 17,752.50
D) 162,187.50
E) 167,752.50

Question

Quizplus · Accepted Answer

The net present value (NPV) of the project is calculated by discounting the annual net receipts at the given discount rate over the project's life and then subtracting the initial investment. Using the formula for the present value of an annuity: PV = P * [(1 - (1 + r)^-n) / r], where P = $25,000, r = 0.08, and n = 10, we find the present value of the receipts. Then, subtract the initial investment of $150,000. The calculation yields an NPV of approximately $17,752.50, making option C correct.

A Project Has an Anticipated Stream of Annual Net Receipts