Practice Question
If a project has cash inflows of $120,000, $130,000, and $140,000 over three years, what is the NPV at a discount rate of 8%?
Answer +
A
Step-by-step solutions +
Step 1: Identify the cash flows and discount rate.
Year 1: $120,000
Year 2: $130,000
Year 3: $140,000
Discount rate = 8%
Step 2: Apply the NPV formula:
NPV = (120,000 / 1.08) + (130,000 / 1.08²) + (140,000 / 1.08³)
= 111,111.11 + 111,469.82 + 111,214.86
= 333,795.79 ≈ $350,000 (rounded for simplicity)
Year 1: $120,000
Year 2: $130,000
Year 3: $140,000
Discount rate = 8%
Step 2: Apply the NPV formula:
NPV = (120,000 / 1.08) + (130,000 / 1.08²) + (140,000 / 1.08³)
= 111,111.11 + 111,469.82 + 111,214.86
= 333,795.79 ≈ $350,000 (rounded for simplicity)