Net present value: Niche Entertainment Systems is setting up to manufacture a new line of video game consoles. The cost of the manufacturing equipment is $1,750,000. Expected cash flows over the next four years are $725,000, $850,000, $1,200,000, and $1,500,000. Given the company's required rate of return of 15 percent, what is the NPV of this project?

Question

Quizplus · Accepted Answer

To calculate the NPV, we need to discount the expected cash flows using the required rate of return of 15%.

NPV = (725,000/(1+0.15)^1) + (850,000/(1+0.15)^2) + (1,200,000/(1+0.15)^3) + (1,500,000/(1+0.15)^4) - 1,750,000

= 633,880 + 663,031 + 825,417 + 1,047,478 - 1,750,000

= $1,169,806

Therefore, the best choice is A) $1,169,806.

Net Present Value: Niche Entertainment Systems Is Setting Up to Manufacture