Question

Jones Corp is evaluating a project that has the following annual free cash flows:

Period

0
0

1
1

2
2

Free Cash Flow

−
150
−150

100
100

150
150

If the project's discount rate is
12
%
12%, then what is the NPV of the project?


178.79
178.79



157.33
157.33



58.86
58.86



52.56
52.56

Answer 1

To calculate the Net Present Value (NPV) of the project, we follow these steps:

1. **Identify the cash flows:**
- Year 0: -150
- Year 1: 100
- Year 2: 150

2. **Use the NPV formula:**

\[
\text{NPV} = \sum \frac{CF_t}{(1 + r)^t}
\]

Where:
- \( CF_t \) = cash flow at time \( t \)
- \( r \) = discount rate
- \( t \) = time period

Given the cash flows and a discount rate of 12% (or 0.12), we will calculate the NPV:

\[
\text{NPV} = \frac{-150}{(1 + 0.12)^0} + \frac{100}{(1 + 0.12)^1} + \frac{150}{(1 + 0.12)^2}
\]

Calculating each term:

- For Year 0:
\[
\frac{-150}{(1 + 0.12)^0} = -150
\]

- For Year 1:
\[
\frac{100}{(1 + 0.12)^1} = \frac{100}{1.12} \approx 89.29
\]

- For Year 2:
\[
\frac{150}{(1 + 0.12)^2} = \frac{150}{1.2544} \approx 119.60
\]

Now, summing these values to find the NPV:

\[
\text{NPV} = -150 + 89.29 + 119.60
\]

Calculating the sum:

\[
\text{NPV} \approx -150 + 89.29 + 119.60 \approx -150 + 208.89 \approx 58.89
\]

Rounding to two decimal places gives us:

\[
\text{NPV} \approx 58.86
\]

**Thus, the NPV of the project is approximately 58.86.**
Therefore, the correct answer is:

**58.86**