Question

Compute the net present value of a $260,000 investment with a 10-year life, annual cash inflows of $50,000 and a discount rate of 12%.

Answer 1

Answer:

NPV= $22,511.15

Explanation:

First, we need to calculate the present value of the cash flows ∑[Cf/(1+i)^n]:

FV= {A*[(1+i)^n-1]}/i

A= annual cash flow

FV= {50,000*[(1.12^10) - 1]} / 0.12

FV= $877,436.75

PV= FV/(1+i)^n

PV= 877,436.75/1.12^10

PV= $282,511.15

Now, the net present value, using the following formula:

NPV= -Io + ∑[Cf/(1+i)^n]

NPV= -260,000 + 282,511.15

NPV= $22,511.15