A project costs $101,000 today and is expected to generate cash flows of $31,000 per year for the next 15 years. At what rate is the NPV equal to zero?
A) 30.10 percent
B) 29.83 percent
C) 22.47 percent
D) 31.38 percent

Question

Quizplus · Accepted Answer

The NPV is equal to zero when the present value of the cash flows is equal to the initial investment. The present value of the cash flows can be calculated using the following formula:PV = CF / (1 + r)^nwhere:PV is the present valueCF is the cash flowr is the discount raten is the number of yearsIn this case, the initial investment is $101,000, the cash flow is $31,000 per year, and the number of years is 15. We can use the above formula to solve for the discount rate that makes the NPV equal to zero:0 = 31,000 / (1 + r)^15 - 101,000Solving for r using a financial calculator or spreadsheet, we get:r = 30.10%Therefore, the correct answer is A) 30.10 percent.

A Project Costs $101,000 Today and Is Expected to Generate