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Answer: $85 million.
### Explanation The correct answer is **A ($85 million)**. The net present value (NPV) is calculated as the present value of future after-tax cash flows minus the initial investment outlay. 1. **After-tax cash flow calculation**: - Annual before-tax cash flow: $50 million - After-tax cash flow: $50 million * (1 - 0.15) = $42.5 million 2. **Present value of after-tax cash flows**: - Parameters: - PMT (payment per period): $42.5 million - N (number of periods): 6 - Interest rate: 12% - Present value: $174.7 million 3. **NPV calculation**: - NPV = Present value - Initial outlay - NPV = $174.7 million - $90 million = $84.7 million ≈ **$85 million** **Why not B or C?** - **B ($116 million)**: Incorrectly uses the before-tax cash flow ($50 million) instead of the after-tax cash flow ($42.5 million), leading to an inflated NPV. - **C ($175 million)**: Omits the initial cash outlay, resulting in an NPV equal to the present value of cash flows alone.
Author: LeetQuiz Editorial Team
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An analyst evaluates a company's capital investment with the following details:
$90 million$50 millionA
$85 million.
B
$116 million.
C
$175 million.