Question

A firm is evaluating an investment proposal which has an initial investment of $5,000 and cash flows presently valued at $4,000. the net present value of the investment is _________.

Answer 1

Answer:

The net present value of the investment is -$1,000

Explanation:

Net present value method: In this method, the initial investment is subtracted from the discounted present value cash inflows. If the amount comes in positive than the project is beneficial for the company otherwise not.

The computation of the Net present value is shown below

= Present value of all yearly cash inflows after applying discount factor - initial investment

= $4,000 - $5,000

= -$1,000

Hence, this investment proposal should not be accepted as it has a negative value