Use the following table for questions 109-111. $\text { Present Value of an Annuity of } 1$
$\begin{array}{rrrr}\text { Periods } & 8 \% & 9 \% & 10\%\
1 & .926 & .917 & .909 \
2 & 1.783 & 1.759 & 1.736 \
3 & 2.577 & 2.531 & 2.487
\end{array}$
-A company has a minimum required rate of return of 9%. It is considering investing in a project that costs $210,000 and is expected to generate cash inflows of $84,000 at the end of each year for three years. The net present value of this project is
A) $212,604.
B) $42,000.
C) $21,261.
D) $2,604.

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by subtracting the initial investment from the present value of the cash inflows. Using the 9% column for 3 periods, the present value factor is 2.531. Multiply this by the annual cash inflow of $84,000 to get the total present value of cash inflows: $2.531 \times 84,000 = 212,604$. Subtract the initial investment of $210,000 to get the NPV: $212,604 - 210,000 = 2,604$.

Use the Following Table for Questions 109-111 Present Value of an Annuity of 1\text { Present Value of an Annuity of } 1 Present Value of an Annuity of 1

Use the Following Table for Questions 109-111 $\text { Present Value of an Annuity of } 1$