What is the net present value of a project that has an initial cost of $40,000 and produces cash inflows of $8,000 a year for 11 years if the discount rate is 15 percent?
A)$798.48
B)$1,240.23
C)$1,869.69
D)$2,111.41
E)$2,470.01

Question

Quizplus · Accepted Answer

We can use the formula for Net Present Value (NPV):

NPV = -Initial Cost + (Cash inflow / (1 + discount rate)^time)

Plugging in the numbers:

NPV = -$40,000 + ($8,000 / (1 + 0.15)^1) + ($8,000 / (1 + 0.15)^2) + ... + ($8,000 / (1 + 0.15)^11)

NPV = -$40,000 + $1,869.69

NPV = $1,829.69

Therefore, the NPV of the project is positive, which means that it is a profitable investment. The best choice is C.

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