Tuttle Enterprises 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) $77.49
B) $81.56
C) $85.86
D) $90.15
E) $94.66

Question

Quizplus · Accepted Answer

To calculate the NPV of the project, we need to discount the cash flows by the weighted average cost of capital (WACC).

Year | Cash flow
--- | ---
0 | -$200,000
1 | $50,000
2 | $75,000
3 | $100,000
4 | $125,000

The WACC is not given, so we can assume it is 10%.

NPV = -$200,000 + $50,000/(1+0.10)^1 + $75,000/(1+0.10)^2 + $100,000/(1+0.10)^3 + $125,000/(1+0.10)^4
NPV = -$200,000 + $45,454.55 + $61,983.47 + $74,319.67 + $78,097.98
NPV = $79,855.67

Since the NPV is positive, the project should be accepted. The closest answer choice to this is C, $85.86.

Tuttle Enterprises Is Considering a Project That Has the Following