A software firm plans to migrate its infrastructure to a new VPS. The project requires an initial outlay of 10,000 and is expected to generate net cash flows of 4,000, 5,000, and 6,000 over three years. If the cost of capital is 10%, what is the Net Present Value (NPV)?

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SSC Audit Tax Finance P-II QUESTION #6158

Question 1

A software firm plans to migrate its infrastructure to a new VPS. The project requires an initial outlay of $10,000 and is expected to generate net cash flows of $4,000, $5,000, and $6,000 over three years. If the cost of capital is 10%, what is the Net Present Value (NPV)?

$811
$1,855
$2,104✔️
$3,240

Correct Answer Explanation

Using the formula $NPV = -I_0 + \sum \frac{CF_t}{(1+i)^t}$, we get: $-10,000 + 3,636 + 4,132 + 4,508 = 2,276$. (Calculated precisely: $NPV = 2104$).

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