Answer:
The investment will generate a NPV of $2,731.
Step-by-step explanation:
Cost of an investment (PV) = $5,000
Annual cash flows = $3,000
Period of investment = 3 years
Interest rate of return = 8%
Annuity Factor = 2.577 (for 3 years at 8% per year)
Present value of the annuity = $3,000 * 2.577 = $7,731
NPV = Annuity PV minus PV of investment cost
= $7,731 - $5,000
= $2,731
b) The NPV (net present value) of $2,731 is the difference between the present value of the annual cash flows $7,731 and the investment cost of $5,000. The resulting NPV is positive and the investment should be accepted.
