What is the net present value of a project that has an initial cost of $42,700 and produces cash inflows of $9,250 a year for 9 years if the discount rate is 14.65 percent?
A)$798.48
B)$1,240.23
C)$1,992.43
D)$2,111.41
E)$2,470.01

Question

Quizplus · Accepted Answer

The formula to calculate the net present value (NPV) of a project is:

NPV = -Initial Cost + Present Value of Cash Inflows

where the present value of cash inflows is calculated as:

Present Value = Cash Inflow / (1 + Discount Rate)^n,

where n is the year of the cash inflow.

Using the above formula, we get:

NPV = -$42,700 + $9,250/(1+0.1465)^1 + $9,250/(1+0.1465)^2 + ... + $9,250/(1+0.1465)^9

NPV = -$42,700 + $18,020.43
NPV = $1,992.43

Therefore, the best choice is (C) $1,992.43, as it is the only option that matches the calculated NPV value.

What Is the Net Present Value of a Project That