Daniel's Market is considering a project with an initial cost of $176,500.The project will not produce any cash flows for the first three years.Starting in Year 4, the project will produce cash inflows of $127,500 a year for three years.This project is risky, so the firm has assigned it a discount rate of 17 percent.What is the project's net present value?
A)$105,222
B)-$6,500
C)$ 29,301.80
D)$ 621.30
E)-$601.03

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the future cash inflows to their present value and subtracting the initial investment. The cash inflows start in Year 4, so they need to be discounted back to Year 0 using the 17% discount rate. The NPV is negative, indicating the project is not financially viable.

Daniel's Market Is Considering a Project with an Initial Cost