Question

You are given a project with the following projected cash flows for a project with a 20% discount rate (pay special attention to the signs of the cash flows):

Year 0: -$50,000
Year 1: $15,000
Year 2: $20,000
Year 3: $30,000
Calculate the net present value (NPV) of the project.

a) $12,396
b) $14,000
c) $10,000
d) -$8,264

Answer 1

The net present value (NPV) of the project is -$5,373.

None of the given options is correct

Step-by-step explanation:

The net present value (NPV) of a project can be calculated by discounting the projected cash flows to their present values and then summing them up.

For Year 0, the cash flow is -$50,000. Since it is the initial investment, it has no discounting applied to it.

• For Year 1, the cash flow is $15,000. Discounted to Year 0, it becomes $12,396.
• For Year 2, the cash flow is $20,000. Discounted to Year 0, it becomes $14,050.
• For Year 3, the cash flow is $30,000. Discounted to Year 0, it becomes $18,181.

To calculate the NPV, we sum up the present values: -$50,000 + $12,396 + $14,050 + $18,181 = -$5,373.

Therefore, the net present value (NPV) of the project is -$5,373.

None of the given options is correct