What Is the NPV of a $45,000 Project That Is

question 107

Essay

What is the NPV of a $45,000 project that is expected to have an after-tax cash flow of $14,000 for the first two years, $10,000 for the next two years, and $8,000 for the fifth year? Use a 10% discount rate. Would you accept the project?

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Definitions:

Payback

The time it takes for an investment to generate an amount of income or cash equivalent to the cost of the investment.

Arbitrary Cutoff

A predetermined point or limit that does not necessarily have a logical basis, used in decision-making or analysis.

Profitability Index

A financial tool used to evaluate the desirability of an investment, calculated as the present value of future cash flows divided by the initial investment.

Accepted

Acknowledged or approved, typically in the context of an agreement or transaction.