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Smith Corporation is considering an investment that will cost $10,000 now and will produce cash inflows of $5,000 in year one, $5,000 in year two, and $2,000 in year three. Assuming a discount rate of 8%, what is the net present value of this investment?
A. $1,025
B. $504
C. $180
D. - $126

Respuesta :

Answer:

B. $504

Explanation:

The computation of the net present value of this investment is shown below:

Year     Cash flow    PV factor at 8%        Present value

0           -$10,000             1                        -$10,000

1             $5,000           0.92593               $4,629.63

2            $5,000           0.85734                $4,286.69

3             $2,000           0.79383               $1,587.66

Net present value                                      $503.99

hence, the correct option is b. $504

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