PRC-2 · Chapter 6 · Question 20 of 45
A business evaluates a project with an initial cost of Rs. 10,000. It generates Rs. 6,000 in Year 1 and Rs. 6,000 in Year 2. If the firm's cost of capital is 10%, what is the approximate NPV?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Rs. 413
Explanation
PV of Year 1 = 6000 / 1.1 = 5454.55. PV of Year 2 = 6000 / (1.1)^2 = 6000 / 1.21 = 4958.68. Total PV = 5454.55 + 4958.68 = 10413.23. NPV = 10413.23 - 10000 = Rs. 413.23.
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