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Managerial Accounting: The Corners...
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Managerial Accounting: The Corners...
Assume that an investment of $1,000 produces a future cash flow of $1,000. The discount factor for this future cash flow is 0.80. The NPV is
- a. $0.
- b. $110.
- c. ($200).
- d. $911.
- e. None of these.
Identify NPV when the future cash flow is $1,200 and investment is of $1,000.
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:
Substitute $800 for P and $1,000 for I in the above formula.
Since net present value is ($200), c is the correct answer
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