A company is considering a project that will require an initial investment of 600 and additional investments of 100 and 50 at the end of years one and two, respectively. It is expected that revenue from this project will be 150 per year for five years, beginning one year from the initial investment.

Assuming an annual effective rate of 15%, calculate the net present value of this project.

• –222
• –134
• 0
• 134
• 222

Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.

Solution: A

[[math]] \ N P V=-600+\frac{150-100}{1.15}+\frac{150-50}{1.15^{2}}+\frac{150}{1.15^{3}}+\frac{150}{1.15^{4}}+\frac{150}{1.15^{5}}=-221.94 [[/math]]

Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.