Which of the following amounts is closest to the net present value of a project that...

Which of the following amounts is closest to the net present value of a project that contributes $5,000 at the end of the first year and $8,000 at the end of the second year? The initial cost is $3,000. The appropriate interest rate is 8% for the first year and 9% for the second year.

A. $8,585

B. $8,426

C. $8,363

Expert Solution

B. $8,426
Statement showing Cash flows
Particulars	Time	PVF at 8 and 9%	Amount	PV
Cash Outflows	-	1.0000	(3,000.00)	(3,000.00)
PV of Cash outflows = PVCO				(3,000.00)
Cash inflows	1.00	0.9259	5,000.00	4,629.63
Cash inflows	2.00	0.8495	8,000.00	6,795.79
PV of Cash Inflows =PVCI				11,425.42
NPV= PVCI - PVCO				8,425.42

jeff jeffy answered 1 year ago

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