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svet-max [94.6K]
3 years ago
15

A firm is reviewing an investment opportunity that requires an initial cash outlay of $336,875 and promises to return the follow

ing irregular payments: Year 1: $100,000 Year 2: $82,000 Year 3: $76,000 Year 4: $111,000 Year 5: $142,000 If the required rate of return for the firm is 8%, what is the net present value of the investment? (You'll need to use your financial calculator.)
Business
1 answer:
Fofino [41]3 years ago
7 0

Answer:

The NPV of this investment is $64,581.75

Explanation:

Hi, we need to discount to present value all the future cash flows, the formula to use is as follows:

NPV=-Investment+\frac{CF1}{(1+r)^{1} }+\frac{CF2}{(1+r)^{2}} +\frac{CF3}{(1+r)^{3}} +\frac{CF4}{(1+r)^{4}} +\frac{CF5}{(1+r)^{5}}

Where

NPV = Net Present Value

CF = The cash flow stated in the problem by year

r= discount rate (in our case, 0.08 or 8%)

Now, let´s solve this.

NPV=-336,875+\frac{100,000}{(1+0.08)^{1} }+\frac{82,000}{(1+0.08)^{2}} +\frac{76,000}{(1+0.08)^{3}} +\frac{111,000}{(1+0.08)^{4}} +\frac{142,000}{(1+0.08)^{5}}

NPV=-336,875+ 92,592.59 + 70,301.78 + 60,331.25 + 81,588.31+96,642.81

NPV=64,581.75

So, the net present value of this project is $64,581.75

Best of luck.

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