Use the table for the question(s)below.
Consider a project with the following cash flows:

-If the appropriate discount rate for this project is 15%,then the net present value (NPV)is closest to:
A)$6000
B)-$867
C)$1420
D)$867
E)$3431

Question

Use the table for the question(s)below.
Consider a project with the following cash flows:
 
-If the appropriate discount rate for this project is 15%,then the net present value (NPV)is closest to:
A)$6000 
B)-$867 
C)$1420 
D)$867 
E)$3431

Quizplus · Accepted Answer

To calculate the NPV of this project, we need to discount each cash flow to its present value using the formula:
PV = CF/(1+r)^t
Where PV is the present value, CF is the cash flow, r is the discount rate, and t is the time period.
Using this formula, we get:
PV of Cash Flow 0 = -$19,000
PV of Cash Flow 1 = $8,000/(1+0.15)^1 = $6,956.52
PV of Cash Flow 2 = $10,000/(1+0.15)^2 = $7,028.46
PV of Cash Flow 3 = $12,000/(1+0.15)^3 = $7,206.79
Therefore, the net present value (NPV) of the project is:
NPV = PV of Cash Flow 0 + PV of Cash Flow 1 + PV of Cash Flow 2 + PV of Cash Flow 3
NPV = -$19,000 + $6,956.52 + $7,028.46 + $7,206.79
NPV = $1,191.77
The closest answer choice to this value is C) $1420. Therefore, C) is the best choice.

Use the Table for the Question(s)below