Case Math · Interview Question
A project pays $110 one year from now and the discount rate is 10%. NPV if it costs $100 today?
How to answer
Discount the cash flow: $110 / 1.10 = $100 present value. NPV = PV minus the $100 cost = $0. That means the project earns exactly the 10% hurdle rate, so the firm is indifferent. A lower upfront cost would create value; a higher one would destroy it.
Key idea: Subtracting the discount rate as a dollar amount, or forgetting to net out the upfront cost so you report PV ($100) instead of NPV ($0).
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