(Ignore income taxes in this problem.) The following data pertain to an investment proposal: The net present value of the proposed investment is closest to:

A) $2,622
B) $5,146
C) $2,524
D) $31,000

Question

(Ignore income taxes in this problem.) The following data pertain to an investment proposal:   The net present value of the proposed investment is closest to:A) $2,622B) $5,146C) $2,524D) $31,000

Janna Carroll · Accepted Answer

Final Answer : B, Explanation :  To calculate the net present value (NPV), we need to discount each year's cash flow by the discount rate of 10% and then subtract the initial investment of $10,000.Year 1 cash flow = $3,000 discounted by 10% = $2,727.27Year 2 cash flow = $5,000 discounted by 10% = $4,132.23Year 3 cash flow = $2,500 discounted by 10% = $1,806.15NPV = -$10,000 + $2,727.27 + $4,132.23 + $1,806.15 = $-2,334.35Since the NPV is negative, the proposed investment should be rejected. None of the answer choices are negative, but the closest to this value is Option B, $5,146. Therefore, the best choice is B.

(Ignore income taxes in this problem.) The following data pertain to an investment proposal: The net present value of the proposed investment is closest to:

A) $2,622
B) $5,146
C) $2,524
D) $31,000

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