An investment requires an initial outlay of 100,000 today. It yields cash inflows of 150,000 at the end of one year. The discount rate is 10%. What is the net present value (NPV)?

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Multiple Choice

An investment requires an initial outlay of 100,000 today. It yields cash inflows of 150,000 at the end of one year. The discount rate is 10%. What is the net present value (NPV)?

Explanation:
NPV shows how much value a project adds today by bringing future cash inflows back to present value and then subtracting the initial outlay. Here, the initial outlay is 100,000 today. The future inflow is 150,000 one year from now, discounted at 10%. Present value of that inflow is 150,000 / (1 + 0.10) = 136,363.64. Subtracting the initial investment gives 136,363.64 − 100,000 = 36,363.64, which rounds to 36,364. So the net present value is positive, indicating the project earns more than the required 10% return.

NPV shows how much value a project adds today by bringing future cash inflows back to present value and then subtracting the initial outlay. Here, the initial outlay is 100,000 today. The future inflow is 150,000 one year from now, discounted at 10%. Present value of that inflow is 150,000 / (1 + 0.10) = 136,363.64. Subtracting the initial investment gives 136,363.64 − 100,000 = 36,363.64, which rounds to 36,364. So the net present value is positive, indicating the project earns more than the required 10% return.

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