Question

Present Value of an Annuity of 1

Period 8% 9% 10%
1 0.926 0.917 0.909
2 1.783 1.759 1.736
3 2.577 2.531 2.487

A company has a minimum required rate of return of 9%. It is considering investing in a project which costs $240000 and is expected to generate cash inflows of $100000 at the end of each year for three years. The net present value of this project is:________

a. $50000.
b. $25310.
c. $253100.
d. $13100.

Answer 1

d. $13,100

Step-by-step explanation:

Net Present value = [Future Annual cash flows * PVIFA (3, 9%)] - Initial investment

Net Present value = [$100,000*2.531} - $240,000

Net Present value = $253,100 - $240,000

Net Present value = $13,100