Molly is considering a project with cash inflows of $811, $924, $638, and $510 over the next four years, respectively. The relevant discount rate is 11.2 percent. What is the net present value of this project if it the start-up cost is $2,700?

a. - $425.91

b. - $131.83

c. - $383.01

d. $10.45

e. $229.50

A. - $425.91

Explanation:

Given that

Start up cost = 2700

Cash inflow 1 = 811

Cash inflow 2 = 924

Cash inflow 3 = 638

Cash inflow 4 = 510

Rate = 11.2% or 0.112

Recall that

NPV = E (CF/1 + i]^n) - initial investment or start up cost

Where

E = summation

CF = Cash flow

i = discount rate

n = years

Thus

NPV = - $2,700 + $811 / 1 + 0.112 + $924 / 1 + 0.112^2 + $638 / 1 + 0.112^3 + $510 / 1 + 0.112^4

NPV = - $425.91

Therefore, NPV = - $425.91