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Apricot, Inc is considering developing a new app for it’s A-phone Z. The app would cost...

Apricot, Inc is considering developing a new app for it’s A-phone Z. The app would cost $310,000 to develop and is expected to produce cash flows of $80,000 per year for the first three years, then $60,000, $50,000, and $40,000 each of the last three years respectively. If their required return is 18%, what is the NPV of the new app?

  • A. -$68,438

  • B. $77,832

  • C. $551,562

  • D. $80,000

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Answer #1

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=80,000/1.18+80,000/1.18^2+80,000/1.18^3+60000/1.18^4+50000/1.18^5+40000/1.18^6

=$241,561.89

NPV=Present value of inflows-Present value of outflows

=$241,561.89-$310,000

=($68438)(Approx)(Negative).

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