Simplicity Printers is considering a project with the following cash flows:
Initial Outlay = $126,000
Cash Flows: Year 1 = $44,000
Year 2 = $59,000
Year 3 = $64,000
If the appropriate discount rate is 11.5%,compute the NPV of this project.
A) -$14,947
B) $2,892
C) $7,089
D) $41,000

Question

Quizplus · Accepted Answer

To calculate the NPV, we need to discount each cash flow to its present value and then sum them up. 
PV of Year 1 = $44,000 / (1 + 0.115) = $39,292.04 
PV of Year 2 = $59,000 / (1 + 0.115)^2 = $44,711.05 
PV of Year 3 = $64,000 / (1 + 0.115)^3 = $44,930.82

NPV = PV of cash inflows - Initial Outlay
NPV = $39,292.04 + $44,711.05 + $44,930.82 - $126,000 = $7,089.91

Therefore, the best choice is C with a positive NPV of $7,089.

Simplicity Printers Is Considering a Project with the Following Cash