Practice Question
If a firm has cash inflows of $500,000 and outflows of $200,000, what is the NPV if the discount rate is 10%?
Answer +
A
Step-by-step solutions +
Step 1: Identify the cash inflows and outflows.
Cash inflows = $500,000
Cash outflows (initial investment or cost) = $200,000
Step 2: Calculate NPV using the formula:
NPV = Present Value of Inflows – Initial Investment
If inflows and outflows are at time zero or already discounted:
NPV = $500,000 – $200,000 = $300,000
Since no time distribution or discounting is necessary beyond this, the NPV is $300,000.
Cash inflows = $500,000
Cash outflows (initial investment or cost) = $200,000
Step 2: Calculate NPV using the formula:
NPV = Present Value of Inflows – Initial Investment
If inflows and outflows are at time zero or already discounted:
NPV = $500,000 – $200,000 = $300,000
Since no time distribution or discounting is necessary beyond this, the NPV is $300,000.