Question

M Corporation has provided the following data concerning an investment project that it is considering:

Initial investment $230,000
Annual cash flow $132,000 per year
Expected life of the project 4 years
The net present value of the project is closest to:____.
a. $250,000.
b. $144,128.
c. $(131,000).
d. $(144,128).

Answer 1

Answer: $170,923.60

Step-by-step explanation:

Missing information is that the discount rate is 12%.

As the cash inflow is constant, this can be termed an annuity. You just need to find the present value of an annuity for 4 years being discounted at 12%.

Present value of Annuity = Annuity * Present value interest factor of Annuity, 12%, 4 periods

= 132,000 * 3.0373

= $400,923.60

Net Present value = Present value of cash inflow - Initial investment

= 400,923.60 - 230,000

= $170,923.60

Options are for variant of question.