A project has cash flows of $15,000, $10,000, and $5,000 in 1, 2, and 3 years, respectively. If...
Question:
A project has cash flows of $15,000, $10,000, and $5,000 in 1, 2, and 3 years, respectively. If the prevailing interest rate is 15%, would you buy the project if it costs $25,000?
Net Present Value:
The net present value is a capital budgeting technique that discounts the expected cash flow at the required rate of return to compute the current worth of the project.
Answer and Explanation: 1
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View this answerComputation of net present value
| Year | PVF @ 15% | Cash Flow | Present Value |
|---|---|---|---|
| 0 | 1.0000 | -$25,000 | -$25,... |
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Evaluating a Budget Using the Net Present Value Method
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Chapter 14 / Lesson 3
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The net present value (NPV) method considered future cash flows to evaluate the value of capital projects—those that increase or decrease an enterprise's value. Learn how this method is calculated and guides budget decisions.
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