CIMA BA2 · Chapter 12 · Question 3 of 13
A project costs $80,000 now and generates cash inflows of $30,000, $35,000 and $40,000 at the end of years 1, 2 and 3 respectively. The cost of capital is 12% and the discount factors are: year 1 0.893, year 2 0.797, year 3 0.712. What is the net present value?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) $3,165
Explanation
PVs: $30,000 x 0.893 = $26,790; $35,000 x 0.797 = $27,895; $40,000 x 0.712 = $28,480. Total PV = $83,165. NPV = $83,165 - $80,000 = $3,165.
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