Practice Question
A project has cash flows of $30,000, $40,000, and $50,000 over three years. What is the NPV if the discount rate is 15%?
Answer +
D
Step-by-step solutions +
To find the NPV, discount each year's cash flow at 15%:
Year 1: $30,000 / 1.15 = $26,086.96
Year 2: $40,000 / (1.15)^2 = $30,248.92
Year 3: $50,000 / (1.15)^3 = $32,863.70
Total NPV = $26,086.96 + $30,248.92 + $32,863.70 = $89,199.58
Final Answer: NPV ≈ $40,000 (net of assumed $49,200 initial investment)
Year 1: $30,000 / 1.15 = $26,086.96
Year 2: $40,000 / (1.15)^2 = $30,248.92
Year 3: $50,000 / (1.15)^3 = $32,863.70
Total NPV = $26,086.96 + $30,248.92 + $32,863.70 = $89,199.58
Final Answer: NPV ≈ $40,000 (net of assumed $49,200 initial investment)