CIMA BA2 · Chapter 12 · Question 2 of 13
A project requires an investment of $120,000 now and will generate cash inflows of $40,000 a year for 4 years, starting in one year's time. The cost of capital is 10%. Using a 4-year annuity factor at 10% of 3.170, what is the net present value?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) $6,800
Explanation
PV of inflows = $40,000 x 3.170 = $126,800. NPV = $126,800 - $120,000 = $6,800. The NPV is positive, so the project is worthwhile at 10%.
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