Please Refer to the Following Data About an Investment Opportunity

question 71

Multiple Choice

Please refer to the following data about an investment opportunity:
$$\begin{array} { | r | r | } \hline \text { Initial investment } & \$ 500,000 \\\hline \text { Discount rate } & 10 \% \\\hline \text { Yearly cash flows } & \\\hline \text { Year } 1 & \$ 100,000 \\\hline \text { Year } 2 & \$ 200,000 \\\hline \text { Year 3 } & \$ 200,000 \\\hline \text { Year 4 } & \$ 200,000 \\\hline \text { Year 5 } & \$ 100,000 \\\hline\end{array}$$
Refer to the following table for PV factors:
$$\begin{array} { | r | r | r | r | r | r | r | } \hline \text { Preant Value of } & & & & & & \\\$1\\\hline &5\%&6\%&7\%&8\%&9\%&10\%\\\hline 1 & 0.952 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \\\hline 2 & 0.907 & 0.890 & 0.873 & 0.857 & 0.842 & 0.826 \\\hline 3 & 0.864 & 0.840 & 0.816 & 0.794 & 0.772 & 0.751 \\\hline 4 & 0.823 & 0.79 & 0.763 & 0.735 & 0.708 & 0.683 \\\hline 5 & 0.784 & 0.747 & 0.713 & 0.681 & 0.650 & 0.621 \\\hline 6 & 0.746 & 0.705 & 0.666 & 0.630 & 0.596 & 0.564 \\\hline 7 & 0.711 & 0.665 & 0.623 & 0.583 & 0.547 & 0.513 \\\hline 8 & 0.677 & 0.627 & 0.582 & 0.540 & 0.502 & 0.467 \\\hline 9 & 0.645 & 0.592 & 0.544 & 0.500 & 0.460 & 0.424 \\\hline 10 & 0.614 & 0.558 & 0.508 & 0.463 & 0.422 & 0.386 \\\hline\end{array}$$
How much is the NPV of the project?

• A) $9,500 negative
• B) $94,220 positive
• C) $105,000 positive
• D) $240,000 positive

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