Consider a project with the following cash flows Year Cash F

Consider a project with the following cash? flows: Year Cash Flow 0 minus12000 1 5000 2 5000 3 5000 4 5000 If the appropriate discount rate for this project is 15?%, then the net present value? (NPV) is closest? to: A. $ 2 comma 275 B. $ 32 comma 000 C. $ 1 comma 592 D. $ 1 comma 365

Solution

Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=$5000[1-(1.15)^-4]/0.15

=$5000*2.854978363

=$14274.89

NPV=Present value of inflows-Present value of outflows

=$14274.89-$12000

=$2275(Approx).