Question

A project for The Umbrella Corp. costs $5,000 today. This project only produces a single cash flow of $6,200 in the second year. If the opportunity cost of capital is 15%, then what is the NPV of this project?

Select one:

a. -$312

b. +$391

c. -$1852

d. +$5,836

Answer 1

Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -$5,000. It is entered with a negative sign since it is a cash outflow.
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter the opportunity cost of capital of 15%.
• Press the down arrow and CPT buttons to get the net present value.  

Net Present value of cash flows at 15% opportunity cost of capital is -$312.

Hence, the answer is option a.