What Is the NPV for the Following Project If Its

question 102

Multiple Choice

What is the NPV for the following project if its cost of capital is 12 percent and its initial after tax cost is $5,000,000 and it is expected to provide after-tax operating cash flows of $1,800,000 in year 1, $1,900,000 in year 2, $1,700,000 in year 3 and ($1,300,000) in year 4?

• A) $(1,494,336)
• B) $1,494,336
• C) $158,011
• D) two of the above

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Definitions:

Interest

The cost of borrowing money, usually expressed as a percentage of the principal, paid by the borrower for the use of borrowed funds.

Rate of Return

The positive or negative change in an investment's worth within a specific period, shown as a percent of the cost of the investment.

Investment Account

A financial account held at a financial institution that holds investments such as stocks, bonds, mutual funds, and other assets for the investor.

Compounding Effect

The method by which an investment's worth grows over time as the returns it generates, including both capital gains and interest, themselves accumulate interest.