A project will cost $1,000 initially, and is expected to return $500 in year 1, $400 in year 2, $300 in year 3, $100 in year 4, and nothing thereafter. What is the project's NPV if the appropriate
Cost of capital is 10%? Round your answer to the nearest dollar.
A)+$182
B)+$79
C)+$1,079
D)none of the above

Question

Quizplus · Accepted Answer

To calculate the NPV, we need to discount each year's cash flow to the present value using the appropriate cost of capital.
Year 1: $500/(1+0.1)^1 = $454.55
Year 2: $400/(1+0.1)^2 = $330.58
Year 3: $300/(1+0.1)^3 = $225.79
Year 4: $100/(1+0.1)^4 = $68.97
NPV = -$1,000 + $454.55 + $330.58 + $225.79 + $68.97 = $79.89
Rounding to the nearest dollar: NPV = $79.

A Project Will Cost $1,000 Initially, and Is Expected to Return