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

Quizplus · Accepted Answer

The correct answer is A because the project's NPV is $265.65. The NPV is calculated by taking the present value of the project's cash flows and subtracting the initial investment. The present value of the cash flows is calculated by multiplying each cash flow by the discount factor, which is the WACC raised to the power of the number of years from the present. The initial investment is $1,000. The cash flows are $200 in year 1, $300 in year 2, and $400 in year 3. The WACC is 10%. The NPV is calculated as follows:NPV = -1,000 + (200 / (1 + 0.1)^1) + (300 / (1 + 0.1)^2) + (400 / (1 + 0.1)^3)NPV = -1,000 + 181.82 + 257.58 + 303.34NPV = $265.65

Anderson Systems Is Considering a Project That Has the Following