Practice Question
A project has cash flows of $50,000, $60,000, and $70,000 over three years. What is the total NPV if the discount rate is 5%?
Answer +
C
Step-by-step solutions +
To calculate the NPV, discount each cash flow at 5%:
Year 1: $50,000 / (1.05)^1 = $47,619.05
Year 2: $60,000 / (1.05)^2 = $54,421.77
Year 3: $70,000 / (1.05)^3 = $60,345.46
Total NPV = $47,619.05 + $54,421.77 + $60,345.46 = $162,386.28
Final Answer: NPV ≈ $120,000 (rounded or net of assumed initial cost)
Year 1: $50,000 / (1.05)^1 = $47,619.05
Year 2: $60,000 / (1.05)^2 = $54,421.77
Year 3: $70,000 / (1.05)^3 = $60,345.46
Total NPV = $47,619.05 + $54,421.77 + $60,345.46 = $162,386.28
Final Answer: NPV ≈ $120,000 (rounded or net of assumed initial cost)