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9 May, 08:34

Molly is considering a project with cash inflows of $811, $924, $638, and $510 over the next four years, respectively. The relevant discount rate is 11.2 percent. What is the net present value of this project if it the start-up cost is $2,700?

a. - $425.91

b. - $131.83

c. - $383.01

d. $10.45

e. $229.50

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  1. 9 May, 09:13
    0
    A. - $425.91

    Explanation:

    Given that

    Start up cost = 2700

    Cash inflow 1 = 811

    Cash inflow 2 = 924

    Cash inflow 3 = 638

    Cash inflow 4 = 510

    Rate = 11.2% or 0.112

    Recall that

    NPV = E (CF/1 + i]^n) - initial investment or start up cost

    Where

    E = summation

    CF = Cash flow

    i = discount rate

    n = years

    Thus

    NPV = - $2,700 + $811 / 1 + 0.112 + $924 / 1 + 0.112^2 + $638 / 1 + 0.112^3 + $510 / 1 + 0.112^4

    NPV = - $425.91

    Therefore, NPV = - $425.91
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