Question

Fim Corp has provided the following data concerning an investment project that is is considering:

initial investment..............$360,000
Annual cash flow..............$118,000 per year
Expected life of project... 4years
Discount rate ...........12%

The net present value is closest to:


A)$358,484
B)360,000
C)$(1,516)
D)$112,000

Answer 1

To calculate the net present value (NPV) of the investment project, we need to discount the annual cash flows to their present value and subtract the initial investment. The net present value (NPV) is closest to option A) $358,484.

Step-by-step explanation:

To calculate the net present value (NPV) of the investment project, we need to discount the annual cash flows to their present value and subtract the initial investment. The present value of the annual cash flows can be calculated using the formula:

PV = CF / (1 + r)^n

Where PV is the present value, CF is the cash flow, r is the discount rate, and n is the number of years. Plugging in the values from the given data, we get:

PV = $118,000 / (1 + 0.12)^1 + $118,000 / (1 + 0.12)^2 + $118,000 / (1 + 0.12)^3 + $118,000 / (1 + 0.12)^4

Solving this equation will give us the total present value of the cash flows. Then, we subtract the initial investment of $360,000 to get the NPV.

The net present value (NPV) is closest to option A) $358,484.