Can you please tell me if I am right on this? I believe the answer is c. $4,264.
A project has an initial outflow of $10,000. The project will generate free cash flows of $8,000 per year for two years. The discount rate is 8%. What is this project’s net present value (NPV)?
a. $4,250
b. $6,000
c.$4,264
d.$16,000
e. $8,000
To find the net present value (NPV) of the project, we need to discount the cash flows and subtract the initial outflow from the sum of discounted cash flows.
First, let's calculate the present value of the cash flows:
Year 1:
PV1 = Cash Flow / (1 + Discount Rate) ^ Number of Years
= $8,000 / (1 + 0.08) ^ 1
= $7,407.41
Year 2:
PV2 = Cash Flow / (1 + Discount Rate) ^ Number of Years
= $8,000 / (1 + 0.08) ^ 2
= $6,844.97
Now, let's calculate the net present value (NPV):
NPV = PV1 + PV2 - Initial Outflow
= $7,407.41 + $6,844.97 - $10,000
= $4,252.38
Therefore, the correct answer is not exactly c. $4,264, but it is close. The closest option to $4,252.38 is a. $4,250.