Answer (D) is correct . The total cash inflows are only $70,000 (5 × $14,000). Thus, whatever the discount rate, the NPV will be less than $20,000 ($70,000 – $50,000). The return in the first year is $14,000, or 28% of the initial investment. Since the same $14,000 flows in each year, the IRR is going to be greater than 10% (actually, it is almost 14%).
Answer (A) is incorrect because It is impossible for the NPV to be greater than $20,000, regardless of the discount rate used.
Answer (B) is incorrect because The total cash inflows are only $70,000 (5 × $14,000). Thus, whatever the discount rate, the NPV will be less than $20,000 ($70,000 – $50,000).
Answer (C) is incorrect because The IRR is greater.
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