What happens to the NPV of a two-year project if sales less costs are increased in each year from $1,000 to $1,500? Assume the firm has a 35% tax rate,and a 15% cost of capital.
A) NPV increases by $812.85.
B) NPV increases by $528.36.
C) NPV increases by $500.00.
D) NPV increases by $282.61.

Question

Quizplus · Accepted Answer

ΔNPV = 500(1 − 0.35) / 1.15 + 500(1 − 0.35) / 1.15² = $528.36

What Happens to the NPV of a Two-Year Project If