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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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If the present value of future cash flows is $4,200 for an investment that requires an outlay of $3,000, the NPV

  1. a. is $200.
  2. b. is $1,000.
  3. c. is $1,200.
  4. d. is $2,200.
  5. e. cannot be determined.

To determine

Identify NPV when the present value of future cash flows is $4,200 and outflow is $3,000.

Explanation

Net present value:

The remaining balance of present value of a project’s inflows and outflows is known as net present value (NPV). It is a discounting model of capital investment decision. A project with a positive NPV increases the wealth of a firm whereas a project with a negative NPV decreases the wealth of a firm.

Use the following formula to calculate NPV:

NPV=Presentvalueofcashinflow(P)Pre

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