Following details are provided by VPN Company. Initial investment $5,000,000 Dis
ID: 2486404 • Letter: F
Question
Following details are provided by VPN Company.
Initial investment
$5,000,000
Discount rate
15%
Yearly cash flows
1
$1,250,000
2
$1,350,000
3
$2,400,000
4
$1,150,000
Refer to the following table for PV factors:
13%
14%
15%
1
0.885
0.877
0.87
2
0.783
0.769
0.756
3
0.693
0.675
0.658
4
0.613
0.592
0.572
What is the NPV of the project?
A. $590,850 negative
B. $590,000 positive
C. $615,455 positive
D. $654,900 negative
Initial investment
$5,000,000
Discount rate
15%
Yearly cash flows
1
$1,250,000
2
$1,350,000
3
$2,400,000
4
$1,150,000
Explanation / Answer
D. $654,900 negative
year CF DF DCF 0 -5,000,000 1 -5000000 1 1,250,000 0.87 1087500 2 1,350,000 0.756 1020600 3 2,400,000 0.658 1579200 4 1,150,000 0.572 657800 NPV -654900