Use the following information to answer the next two questions:
A publisher is deciding whether to invest in a new printer that needs an initial investment of $500.This will increase cash flows in the first year by $600 for the next two years.
-If the interest rate is 10% then the net present value of these cash flows is
A)$1041.32
B)$541.32
C)$1090.91
D)$590.91

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the future cash flows to their present value and subtracting the initial investment. The formula for NPV is: NPV = (Cash Flow Year 1 / (1 + r)^1) + (Cash Flow Year 2 / (1 + r)^2) - Initial Investment. Here, NPV = ($600 / 1.1) + ($600 / 1.1^2) - $500 = $545.45 + $495.87 - $500 = $541.32.

Use the Following Information to Answer the Next Two Questions