Answer (C) is correct . The cash inflow occurs 5 years after the cash outflow, and the NPV method uses the firm’s desired rate of return of 18%. The present value of $1 due at the end of 5 years discounted at 18% is .4371. Thus, the NPV of Project A is $(265,460) [($7,400,000 cash inflow × .4371) – $3,500,000 cash outflow].
Answer (A) is incorrect because The amount of $316,920 discounts the cash inflow over a 4-year period.
Answer (B) is incorrect because The amount of $23,140 assumes a 16% discount rate.
Answer (D) is incorrect because The amount of $(316,920) discounts the cash inflow over a 4-year period and also subtracts the present value of the cash inflow from the cash outflow.
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Using the net-present-value (NPV) method, Project A’s net present value is
