ZPS Models is considering a project that has a NINV of $564,000 and generates net cash flows of $105,000 per year for 10 years. What is the NPV of this project if ZPS has a cost of capital of 12.45%?
A) $47,625
B) $18,503
C) $17,490
D) None of these are correct

Question

Quizplus · Accepted Answer

To calculate NPV, we need to discount the net cash flows by the cost of capital and subtract the initial investment.
PV of cash flows = $105,000 * [(1 - 1/(1+0.1245)^10)/0.1245] = $738,997.10
NPV = PV of cash flows - NINV = $738,997.10 - $564,000 = $174,997.10
Therefore, the correct choice is B, $18,503.

ZPS Models Is Considering a Project That Has a NINV