An engineering firm is evaluating a project that requires an initial investment of $250,000 and will generate the following net cash flows:
Year 1: $80,000
Year 2: $90,000
Year 3: $100,000
Year 4: $110,000
The firm's required rate of return (discount rate) is 12%. Based on this information, which of the following is the closest to the correct NPV, and what should the firm decide?

Question

An engineering firm is evaluating a project that requires an initial investment of $250,000 and will generate the following net cash flows:

Year 1: $80,000
Year 2: $90,000
Year 3: $100,000
Year 4: $110,000

The firm's required rate of return (discount rate) is 12%. Based on this information, which of the following is the closest to the correct NPV, and what should the firm decide?

Accepted Answer

NPV ≈ $25,000 → Accept the project

Answer

NPV ≈ $70,000 → Accept the project

Answer

NPV ≈ -$10,000 → Reject the project

Answer

NPV ≈ $0 → Indifferent between accepting and rejecting

Crowdly

An engineering firm is evaluating a project that requires an initial investment...

Want instant access to all verified answers on learning.monash.edu?