Asked by Bailey Ennis on Jul 14, 2024
Verified
The net present value of Project A is closest to?
A) $82,241.
B) $67,610.
C) $81,290.
D) $74,450.
Discount Rate
The interest rate used to discount future cash flows of a financial instrument to present value, reflecting the time value of money and investment risk.
Net Present Value
A calculation used to determine the value of an investment by discounting future cash flows to their present value to assess its profitability.
Working Capital
The variation between an organization's immediate assets and its immediate debts, reflecting its short-term fiscal stability and efficiency in operations.
- Acquire the understanding and ability to employ the concept of net present value (NPV) in the context of investment decisions.
Verified Answer
JJ
Jasmine JonesJul 18, 2024
Final Answer :
C
Explanation :
The net present value (NPV) of Project A can be calculated using the formula for NPV, which involves discounting the future cash inflows and outflows to their present value using the given discount rate of 14%. For Project A, the initial investment is $120,000, the annual net operating cash inflows are $50,000 for 6 years, and the salvage value of the equipment in 6 years is $15,000. Using these figures and the discount rate, the NPV calculation for Project A results in an NPV closest to $81,290.
Learning Objectives
- Acquire the understanding and ability to employ the concept of net present value (NPV) in the context of investment decisions.