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Adolph Inc is considering adding a new product to their sales offerings. The initial cost would...

Adolph Inc is considering adding a new product to their sales offerings. The initial cost would be $19,900. The product is expected to have a 3 year life and produces net cash flows of $4,500, $7,200 and $11,400 at the end of each of 3 years respectively. What is the net present value of this product at a discount rate of 13%?

a) -$3,607

b) -$2,378

c) $1,037

d) $1,418

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Answer #1
Ans. Option b   -$2,378
Year Cash inflow    * P V Factor Present Value
1 $4,500 0.8850 $3,982
2 $7,200 0.7831 $5,639
3 $11,400 0.6931 $7,901
Total Present Value Of Cash Inflow $17,522
Present value of cash inflows $17,522
Less: Investment -$19,900
Net present value -$2,378
*Calculation of Present value factors:   (PV @ 13%)
Year PV @ 13%
1 1 / (1 + 0.13)^1 0.8850
2 1 / (1 + 0.13)^2 0.7831
3 1 / (1 + 0.13)^3 0.6931
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