Use the following table to answer this question: Present value of an annuity of

Question

Use the following table to answer this question:

Present value of an annuity of 1

Period           8%            9%          10%

1               .926            .917          .909

2              1.783          1.759        1.736

3              2.577          2.531       2.487

A company has a minimum required rate of return of 9%.  It is considering investing in a project that cost $420,000 and is expected to generate cash inflows of $168,000 at the end of each year for 3 years.  Calculate the net present value of the project.                                                                                                 

Explanation / Answer

Hi,

Please find the answer as follows:

NPV = -420000 + 168000*2.531 = 5208

Option C (5208) is correct.

Thanks.

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