Using the method of your choice calculate the Net Present Value of the following cash flows. Assume that the required return on this project is 15% Project A Initial Cost -$150 Year 1 $175 Yeat 2 $100

Using the method of your choice calculate the Net Present Value of the following cash flows. Assume that the required return on this project is 15% Project A Initial Cost -$150 Year 1 $175 Yeat 2 $100

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 4CMA

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

Using the method of your choice calculate the Net Present Value of the following cash flows. Assume that the required return on this project is 15%

Project A

Initial Cost -$150

Year 1 $175

Yeat 2 $100

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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