Practice Question
If a firm has total cash inflows of $500,000 and total cash outflows of $300,000 over a project’s lifetime, what is the NPV assuming a discount rate of 10%?
Answer +
A
Step-by-step solutions +
Step 1: Identify total inflows and outflows.
Total inflows = $500,000
Total outflows = $300,000
Step 2: Apply the basic NPV formula:
NPV = Present Value of Inflows – Present Value of Outflows
Assuming both are already discounted or evaluated at net present value:
NPV = $500,000 – $300,000 = $200,000
Therefore, the NPV is $200,000, indicating a profitable project.
Total inflows = $500,000
Total outflows = $300,000
Step 2: Apply the basic NPV formula:
NPV = Present Value of Inflows – Present Value of Outflows
Assuming both are already discounted or evaluated at net present value:
NPV = $500,000 – $300,000 = $200,000
Therefore, the NPV is $200,000, indicating a profitable project.