Which of the following is the correct equation to solve for the NPV of the project that has an initial outlay of $30,000,followed by three years of $20,000 in incremental cash inflow? Assume a discount rate of 10%. A)NPV = -30,000 + (3 × 20,000)/(1.10)³ B)NPV = -$30,000 + $20,000/(1.10)¹ + $20,000/(1.10)² + $20,000/(1.10)³ C)NPV = -$30,000 + $20,000/(1.01)^.10 + $20,000/(1.02)^.10+ $20,000/(1.03)^.10 D)NPV = -$30,000 + $20,000/(1.1)^.10 + $20,000(1.2)^.10 + $20,000(1.3)^.10

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Quizplus · Accepted Answer

The correct equation for NPV calculation is to discount the incremental cash inflows and subtract the initial investment. The discount rate is 10%, which means we need to divide the cash inflow by (1.10)^n, where n is the year of the cash inflow. Therefore, the equation is NPV = -$30,000 + $20,000/(1.10)^1 + $20,000/(1.10)^2 + $20,000/(1.10)^3, which is equivalent to choice B.

Which of the Following Is the Correct Equation to Solve