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John is considering a project with cash inflows of $1,100, $1,000, $1,050, and $1,200 over the next four years, respectively. The relevant discount rate is 12.5 percent. What is the net present value of this project if it the start-up cost is $3,200?a) $54.50b) $48.04c) −$35.45d) $89.33e) $122.00

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Parrain

Answer: a) $54.50

Explanation:

Net Present Value is calculated by deducting the Present value of the Outflows from that of the Inflows.

Present value of Inflows = (1,100/1.125) + (1,000/1.125²) + (1,050/1.125³) + (1,200/1.125⁴)

= $3,254.50

Net present value = 3,254.50 - 3,200

= $54.50

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