Question

Nobel Tech Inc. is building a new production line. The cost of the production line is...

Nobel Tech Inc. is building a new production line. The cost of the production line is $3 million in the current year and $2 million in the following year. The production line is expected to bring in cash inflow of $1.6 million in year 2, and $2 million each year from year 3 to year 7. The company uses a cost of capital of 10% on all the projects.

The NPV of the project is closest to _______ million.

Group of answer choices

a, $2.8

b. $1.8

c. $3.2

d. $3.8

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Answer #1

NPV = sum of present values of cash flows

Present value of each cash flow = cash flow / (1 + cost of capital)n

where n = number of years after which the cash flow occurs

NPV = $2.8 million

The answer is (a)

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