PRC-2 · Chapter 6 · Question 7 of 45
A firm invests Rs. 10 million today. The firm's cost of capital is 10%. The project will yield exactly Rs. 12 million one year from now. What is the Net Present Value (NPV) in millions?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Rs. 0.909 million
Explanation
First, find the PV of the inflow: 12 million / (1 + 0.10)^1 = 10.909 million. Then, subtract the initial investment: 10.909 million - 10 million = 0.909 million.
More Discounted Cash Flows MCQs
- Q9In the context of capital budgeting and discounted analysis, what does the term 'cash flow' technically represent?
- Q10Which of the following is widely considered the most significant limitation of the basic Payback Period appraisal method?
- Q11A proposed project has an NPV of Rs. 6,000 when discounted at 10%, and an NPV of Rs. (2,000) when discounted at 14%. Using the linear…
- Q12The mathematical process of discounting future cash flows back to the present time is primarily executed to account for which financial…
- Q13How is the Internal Rate of Return (IRR) mathematically defined within standard discounted cash flow analysis?