A project will produce cash inﬂows of $1,750 a year for four years. The project initially costs $10,600 to get started. In year ﬁve, the project will be closed and as a result should produce a cash inﬂow of
$8,500. What is the net present value of this project if the required rate of return is 13.75 percent?
A) ($5,474.76)
B) ($1,011.40)
C) ($935.56)
D) $1,011.40
E) $5,474.76

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting all cash inflows and outflows to the present value using the required rate of return. The NPV is the sum of these present values. In this case, the NPV is negative, indicating that the project does not meet the required rate of return.

A Project Will Produce Cash Inﬂows of $1,750 a Year