Question

A project will produce cash inflows of $1,750 a year for four years. The project initially...

A project will produce cash inflows of $1,750 a year for four years. The project initially costs $7,164 to get started. In year five, the project will be closed and as a result should produce a cash inflow of $3,500. The net present value of this project is closest to what value if the required rate of return is 12%?

Select one:

a. $5,474.76

b. $1,011.40

c. $95.56

d. -$1,306.18

e. -$5,474.76

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Homework Answers

Answer #1

The calculation of NPV of the project is shown in the below table:

(Note: The present value factor is calculate as : 1/ (1+rate of return)^n , where n is the number of years )

Years Cash flows(CF) Present value factor(PV) CF * PV
0 -7164 1.000 -7164.000
1 1750 0.893 1562.500
2 1750 0.797 1395.089
3 1750 0.712 1245.615
4 1750 0.636 1112.157
5 3500 0.567 1985.994
TOTAL ( NPV) = 137.355

The NPV of the project is $ 137.355

Please note here that the options given are different from the value of NPV, but since it is mentioned to mark the closest value , we can mark c) as the answer since its the closest.

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