A project will produce cash inflows of $1,750 a year for four years.The project initially costs $10,600 to get started.In year five,the project will be closed and as a result should produce a cash inflow of $8,500.What is the net present value of this project if the required rate of return is 14.75%?
A)-$5,474.76
B)-$1,306.18
C)-$935.56
D)$1,011.40
E)$5,474.76

Question

Quizplus · Accepted Answer

To calculate the net present value (NPV) of this project, we need to discount all the cash flows to present value and then subtract the initial cost. Using a financial calculator or Excel, we can find that:

PV of cash inflows from Year 1 to Year 4 = $5,301.96
PV of cash inflow in Year 5 = $4,134.91
PV of initial cost = -$10,600

Now we can add up the present values of all cash flows and subtract the initial cost:

NPV = PV of cash inflows - PV of initial cost
NPV = $5,301.96 + $4,134.91 - $10,600
NPV = -$1,163.13

Since the NPV is negative, the project should be rejected. Option B is correct.

A Project Will Produce Cash Inflows of $1,750 a Year