Question

How is the Net Present Value (NPV) of a project calculated?

a.

NPV of Project = ∑ (Cash Flow at the end of the year / (1 + discount rate)^time to expiration) - Initial investment

b.

NPV of Project = ∑ (Initial investment / (1 + discount rate)^time to expiration) - Cash Flow at the end of the year

c.

NPV of Project = ∑ (Cash Flow at the end of the year * (1 + discount rate)^time to expiration) - Initial investment

d.

NPV of Project = ∑ (Initial investment * (1 + discount rate)^time to expiration) - Cash Flow at the end of the year

Posted under IC 89 Management Accounting

Answer: (a).NPV of Project = ∑ (Cash Flow at the end of the year / (1 + discount rate)^time to expiration) - Initial investment Explanation:The Net Present Value (NPV) of a project is calculated as the sum of the present values of all cash flows (both positive and negative) over the life of the project using the formula mentioned in option a.

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Q. How is the Net Present Value (NPV) of a project calculated?
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