What is the net present value of a project with a cost of $100 000 that generates cash flows of $40 000 over the next three years,and the required rate of return is 15%?
A)$8670
B)-$8670
C)$7890
D)-$5210

Question

Quizplus · Accepted Answer

To calculate the net present value (NPV), we need to discount the future cash flows back to their present value using the required rate of return. 
NPV = - Cost + PV(Cash Flows)
NPV = -100000 + [40000/(1.15)^1] + [40000/(1.15)^2] + [40000/(1.15)^3]
NPV = -100000 + 30435.78 + 26363.32 + 22799.86
NPV = -8670.04
Therefore, the net present value of the project is -$8670. Answer B is correct. 
Option A and C are incorrect because they have positive NPV values, and Option D is incorrect because it has a higher absolute value (i.e., $5210) than the correct answer.

What Is the Net Present Value of a Project with a Cost