A firm estimates that it will receive cash flows from a new product of $150,000 in Year 1, $220,000 in Year 2, and $150,000 in Year 3. If a discount rate of 7% is assumed, what is the NPV of this product's cash flows?
A) $454,788
B) $556,400
C) $520,000
D) NPV cannot be determined from the information given

Question

Quizplus · Accepted Answer

The NPV is calculated by discounting each cash flow to its present value and summing them up: NPV = $150,000/(1+0.07)^1 + $220,000/(1+0.07)^2 + $150,000/(1+0.07)^3 = $140,187.85 + $192,150.94 + $122,449.21 = $454,788.

A Firm Estimates That It Will Receive Cash Flows from a New