Independent solution

How to solve this Reinvestment-Adjusted Net Present Value question

Setup

Setup

Move the time-3 receipt forward one year at its stated reinvestment rate, then combine it with the time-4 receipt. This places all terminal proceeds at one date.

60000 at t=3⟹62400 at t=460000\text{ at }t=3\Longrightarrow62400\text{ at }t=4

Model

Model

The combined time-4 amount is 122,400. Discount that amount four years at 5% and subtract the initial 100,000 outlay.

PV=122400(1.05)−4=100699PV=122400(1.05)^{-4}=100699

Compute

Compute

The present value of proceeds is 100,699, so net present value is 699.

NPV=100699−100000=699NPV=100699-100000=699

Answer

Answer

The calculation gives 699 for reinvestment-adjusted net present value, matching published choice C.

NPV=699(C)\boxed{NPV=699\quad\text{(C)}}