Vanilla Bean Restaurant is considering a project with an initial cost of $525,000. The project will not produce any cash flows for the first three years. Starting in year 4, the project will produce cash inflows of $721,000 a year for three years. This project is risky, so the firm has assigned it a discount rate of 16 percent. What is the project's net present value

Vanilla Bean Restaurant

The project's net present value (NPV) is:

$511,798

Explanation:

a) Data and Calculations:

Initial project cost = $525,000 in year 1

Project's inflows in Year 4, 5, & 6 = $721,000 each

Discount rate = 16%

Present value of inflows:

Year 4 = $721,000 * 0.552 = $397,992

Year 5 = $721,000 * 0.476 = $343,196

Year 6 = $721,000 * 0.410 = $295,610

Total present value =          $1,036,798

Therefore, the NPV = $511,798 ($1,036,798 - $525,000).  The present value is the difference between the present value of the project's cash inflows and the present value of project's cash outflows during the project's life.

there was no passage listed but using the process of elimination i'd say it was d. the high economy would do the opposite. i don't see how low prices would affect it. high unemployment is possible but i feel d is the better answer.