Ajax Corporation is planning a 10 year project that will have an initial cost of $500,000.During the first 2 years, there will be cash outflows of $40,000.Years 3-6 will see cash inflows of $120,000.Years 7-10 will see cash inflows of $200,000.If the company's required rate of return is 9%, determine the NPV of the project.
A)$143,200
B)$225,650
C)$375,800
D)$500,000

Question

Quizplus · Accepted Answer

The NPV (Net Present Value) of the project can be calculated by discounting all cash flows (both inflows and outflows) to their present value using the required rate of return (9% in this case) and then summing those values. The initial cost is an outflow, so it's subtracted. The formula for NPV is: NPV = (Cash Flow / (1 + r)^t) - Initial Investment, where r is the rate of return and t is the time period. Calculating each cash flow's present value and summing them gives an NPV of approximately $143,200.

Ajax Corporation Is Planning a 10 Year Project That Will