- 1 Marks
Question
The formula for calculating Net Present Value (NPV) of an investment is:
A. Σₜ=₁ⁿ [(Cₜ / (1 + r)ᵗ)] – C₀
B. Σₜ=₀ⁿ [(Cₜ / (1 + r)ᵗ)] – C₀
C. Σₜ=₀ⁿ [(C₀ / (1 + r)ᵗ)] – C₀
D. Σₜ=₁ⁿ [(C₀ / (1 + r)ᵗ)] – C₀
E. Σₜ=₁ⁿ [(Cₜ / (1 + r)ᵗ)] + C₀
Answer
A
Explanation:
The correct answer is “A. Σₜ=₁ⁿ [(Cₜ / (1 + r)ᵗ)] – C₀.”
Explanation: The Net Present Value (NPV) is calculated by discounting future cash inflows (Cₜ) to their present value using the discount rate (r), summing them up, and then subtracting the initial investment (C₀).
- Tags: Financial management, Investment, NPV
- Level: Level 1
- Topic: Investment Decisions
- Series: NOV 2015
- Uploader: Dotse