Practice Question
If a project has cash inflows of $20,000, $30,000, and $40,000 over three years, what is the NPV at a discount rate of 12%?
Answer +
B
Step-by-step solutions +
Step 1: Identify the cash flows and discount rate.
Year 1: $20,000
Year 2: $30,000
Year 3: $40,000
Discount rate = 12%
Step 2: Apply the NPV formula:
NPV = ($20,000 / 1.12) + ($30,000 / 1.12²) + ($40,000 / 1.12³)
≈ $17,857.14 + $23,918.57 + $28,470.47
≈ $70,246.18
Rounded answer: ≈ $70,000
Year 1: $20,000
Year 2: $30,000
Year 3: $40,000
Discount rate = 12%
Step 2: Apply the NPV formula:
NPV = ($20,000 / 1.12) + ($30,000 / 1.12²) + ($40,000 / 1.12³)
≈ $17,857.14 + $23,918.57 + $28,470.47
≈ $70,246.18
Rounded answer: ≈ $70,000