One of test questions I came across dealing with Net Present Value was the following: If the Net Present Value for each of the cash flows were calculated at a 10% interest rate, the net present value cash flow at the end of five years would be:
a. greater than the total cash flow without the net present value applied
b. Less than the total cash flow without the net present value applied
c. the same as the total cash flow without the net present value applied
d. Unable to be calculated with the information supplied.
The answer is b, but the "without the net present value applied" is throwing me off. Is this added to just clarify the answer?
Here is the table:
End of Year 1, Cash Flow In: 0, Cash Flow Out: 500,000
End of Year 2, Cash Flow In: 300,000, Cash Flow Out: 90,000
End of year 3,Cash Flow In: 400,000, Cash Flow Out: 100,000
End of year 4,Cash Flow In: 100,000, Cash Flow Out: 175,000
End of year 5,Cash Flow In: 50,000, Cash Flow Out: 35,000