Question

Park Co. is considering an investment that requires immediate payment of $34,000 and provides expected cash inflows of $11,800 annually for four years. If Park Co. requires a 10% return on its investments. 1-a What is the net present value of this investment?(FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Answer 1

Answer:

NPV =  3,404.41

Explanation:

We will calculate the net present value doing:

NPV =  present value of the cash flow   - investment

Investment = 34,000

Now we need to discount each cash flow at the given rate.

For that, we will treat the cash flow as an annuity of 11,800 for 4 year at 10% rate:

$C \times \frac{1-(1+r)^{-time} }{rate} = PV$

C 11800

time 4

rate 0.1

$11800 \times \frac{1-(1+0.1)^{-4} }{0.1} = PV$

PV $37,404.41

NPV =  present value of the cash flow   - investment

NPV =       37,404.41 - 34,000 = 3,404.41