Npv of the following cash flow discount rate is $250 year [1500 × 0.15
+ 25 = $250]
The difference between the current value of cash inflows and withdrawals over a period of time is known as net present value (NPV). To evaluate the profitability of a proposed investment or project, NPV is used in capital budgeting and investment planning.
Using the appropriate discount rate, calculations are performed to determine the current value of a stream of future payments, or NPV. Projects that have a positive NPV are generally worthwhile undertaking, whereas those that have a negative NPV are not.
The value of a project, investment, or any set of cash flows is estimated using NPV analysis. It is a comprehensive metric because it incorporates all revenues, costs, and capital outlays related to an investment in its free cash flow.
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