Answer:
Net Present Value = $12,400
Since net present value is positive, the investment shall be made.
Explanation:
Capital outlay = $216,758
Cash inflow every year = $43,900
Period = 10 Years
Net Present Value = Present value of cash inflow - Present value of cash outflow
Present Value of Cash Inflow = Cash inflow each year X Present value factor of cash inflows for years
= $43,900 X 5.22
= $229,158
Present value of cash outflow = $216,758
Net Present Value = $229,158 - $216,758 = $12,400
Since net present value is positive, the investment shall be made.
Net Present Value measures the net effect of an investment discounted at current rate of interest, i.e. cost of capital.
Final Answer
Net Present Value = $12,400
Since net present value is positive, the investment shall be made.
