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SOAL
A company is considering entering into a joint venture that will require an investment of $10 million. The project is expected to generate cash flows of $4 million, $3 million, and $4 million in each of the next three years, respectively. Assuming a discount rate of 10 percent, what is the project’s NPV?
(a) $879,000
(b) -$309,000
(c) $243,000
(d) -$1,523,000
JAWAB by ChatGPT
To calculate the Net Present Value (NPV) of the project, we use the formula:
Where:
-
= Cash flow at time
-
= Discount rate (10% or 0.10)
-
= Initial investment ($10 million)
Given cash flows:
-
Year 1: $4 million
-
Year 2: $3 million
-
Year 3: $4 million
-
Discount rate: 10%
-
Initial investment: $10 million
Now compute the present value (PV) of each cash flow:
Sum of PVs:
Then,
Correct answer: -$879,000, which corresponds to option A.
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