Answer:
Net Present Value = $3,304.069
Explanation:
<em>To determine whether or not the investment was right, we will need to determine the net present value of the investment (NPV).
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<em>The NPV is the difference between the present value PV of cash inflows and the PV of cash outflows. A positive NPV implies a good investment decision and a negative figure implies the opposite.
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NPV of an investment(NPV)
NPV = PV of Cash inflows - PV of cash outflow
The cash inflow is an annuity.
PV of annuity= A× 1 -(1+r)^(-n)/r
A- Annual cash flow
,- 23,400 r - discount rate - 8%, number of years- 3
Present Value of cash inflow =23,400 × (1- (1.08)^(-3)/0.08 = 60,304.06
Initial cost = 57,000
Net Present Value = 60,304.06 - 57,000 = 3,304.069
Net Present Value = $3,304.069
<em>Kindly note that a discount rate of 8% was used as it is the opportunity cost of capital for the investment.</em>
