Would you accept a project which is expected to pay $10,000 a year for seven years if the initial investment is $40,000 and your required return is 15%?
A) Yes; the NPV is $1,604
B) Yes; the NPV is $1,446
C) Yes; the NPV is $4,238
D) No; the NPV is -$1,369
E) No; the NPV is -$2,783

Question

Quizplus · Accepted Answer

The Net Present Value (NPV) is calculated using the formula NPV = ∑ (Rt / (1+i)^t) - initial investment, where Rt is the cash inflow for period t, i is the discount rate (required return), and t is the time period. For this project, with cash inflows of $10,000 per year for 7 years, an initial investment of $40,000, and a required return of 15%, the NPV is positive, indicating the project is expected to generate more than the required return, making it a worthwhile investment.

Would You Accept a Project Which Is Expected to Pay