Final answer:
The net present value (NPV) calculation of an investment project accounts for the present value of future cash flows minus the initial investment, discounted at the project's rate. The answer involves mathematical processes to arrive at the present value, which does not align perfectly with the multiple-choice options given.
Step-by-step explanation:
When determining the net present value (NPV) of an investment project, as is the case in the scenario provided for Moates Corporation, we take into account the initial investment, the series of annual cash flows, and the project's expected lifespan, all discounted at a given rate. In this instance, the initial investment is $270,000, the annual cash flow is $125,000 per year for 4 years, and the project is being evaluated at a discount rate of 10%. To calculate the NPV, we discount each annual cash flow back to its present value and subtract the initial investment.
The present value of each cash flow can be found using the formula PV = C / (1+r)^n, where C is the cash flow, r is the discount rate, and n is the year number. Summing up these values for each year gives us the total present value of the cash inflows. Finally, we subtract the initial investment from this total to find the NPV. The NPV is a crucial decision-making tool that aids investors in establishing whether an investment will yield a return that exceeds the cost of capital, reflected in the discount rate.
The NPV of the project for the Moates Corporation will not precisely match any of the multiple-choice options provided, as it may not fall neatly into a single round figure. Typically, using financial calculators or spreadsheet software would provide the most accurate results, ensuring every decimal is accounted for.