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What is the net present value of a project that has an initial cash outflow of $34,900 and the following cash inflows? The required return is 15.35 percent.
year cash flow
1 $12,500,
2 19,700,
3 0,
4 10,400.
A. -3,383.25
B. -2,784.62
C. - 2481.53
D. 52,311.08
E. 66,416.75

Respuesta :

Kolawole845

Answer:

NPV = $-3,383.25

Explanation:

The NPV is the difference between the PV of cash inflows and the PV of cash outflows. A positive NPV implies a good investment decision and a negative figure implies the opposite.  

NPV of an investment:  

NPV = PV of Cash inflows - PV of cash outflow  

PV of cash inflow =

$12,500, × 1.1535^(-1)  +  19,700, × 1.1535^(-2) + 0× 1.1535^(-3)  +  10,400.× 1.1535^(-2) = 31,516.7476

Initial,cost = 34,900

NPV = 31,516.7476  - 34,900 = -3,383.25

NPV = $-3,383.25

The net present value of the project is $-3,383.25.

Net present value is the present value of after-tax cash flows from an investment less the amount invested. It is a capital budgeting method. If the NPV is negative, it means that the project is not profitable.

  • Cash flow in year 0 =  $-34,900  
  • Discounted cash flow in year 1 = $12,500 / 1.1535 = $10,836.58
  • Discounted cash flow in year 2 =$19700 / 1.1535² = $14,805.77
  • Discounted cash flow in year 3 = 0
  • Discounted cashflow in year 4 = 10,400 / 1.1535^4 = $5,874.39

Sum of discounted cash flows = $31,516.75

NPV =  $-34,900 +  $31,516.75 = $-3,383.25

To learn more about net present value, please check: https://brainly.com/question/13739943

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