Question

f Quail Company invests $46,000 today, it can expect to receive $12,000 at the end of each year for the next seven years, plus an extra $6,800 at the end of the seventh year. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Enter negative net present values, if any, as negative values. Round your present value factor to 4 decimals.) What is the net present value of this investment assuming a required 12% return on investments

Answer 1

Answer:

NPV = $11841.05313 rounded off to $11841.05

Explanation:

The Net Present value or NPV is a metric for investment appraisal purposes. It calculates the present value of cash inflows less any cash outflow made at the start of the project to generate those cash inflows. The formula to calculate the NPV is,

NPV = CF1 / (1+r)  +  CF2 / (1+r)^2  +  ....  +  CFn / (1+r)^n  -  Initial Outlay

Where,

• CF1, CF2 and so on represents the cash flow in year 1 , year 2 and so on.
• r is the discount rate or required rate of return

NPV = 12000 / (1+0.12)  +  12000 / (1+0.12)^2  +  12000 / (1+0.12)^3  +  

12000 / (1+0.12)^4  +  12000 / (1+0.12)^5  +  12000 / (1+0.12)^6  +  

(12000 + 6800) / (1+0.12)^7  -  46000

NPV = $11841.05313 rounded off to $11841.05