Question

A potential project demands $300,000 upfront investment, and it is expected to generate $75,000 cash inflow in year 1, a loss of $25,000 in year 2, again inflow of $100,000 in year 3, and finally $350,000 in year 4. The required rate of return is 5%. What is the NPV of the project? $117,221 O$95,691 $151,238 $123,082

Answer 1

NPV :
NPV = PV of Cash Inflows - PV of Cash Outflows
If NPV > 0 , Project can be accepted
NPV = 0 , Indifference point. Project can be accepted/ Rejected.
NPV < 0 , Project will be rejected.

Year	Cash Flows	PVF@5%	Disc CF
0	$    -3,00,000	1	$      -3,00,000
1	$        75,000	0.9524	$           71,429
2	$       -25,000	0.9070	$         -22,676
3	$     1,00,000	0.8638	$           86,384
4	$     3,50,000	0.8227	$        2,87,946
NPV	$        1,23,082

PVF = 1/ (1+r)^n

r = Interest rate

n = Time gap

4th Option has to be selected

Pls do rate, if the answer is correct and comment, if any further assistance is required.