Question

Lucy purchased two trucks for her warehouse for a total of $53,000. This investment saved her $15,000 every year for 11 years. At the end of year 11, she sells both the trucks for a total of $12,000.

a. What is the Net Present Value (NPV) of the investment if the required rate of return is 7%?

Round to the nearest cent

b. Does the investment meet the required rate of return?

Yes

No

Answer 1

Part A:

NPV :
NPV = PV of Cash Inflows - PV of Cash Outflows
If NPV > 0 , Project can be accepted
NPV = 0 , Indifference point. Project can be accepted/ Rejected.
NPV < 0 , Project will be rejected.

Year	CF	PVF @7%	Disc CF
0	$ -53,000.00	1.0000	$ -53,000.00
1	$ 15,000.00	0.9346	$ 14,018.69
2	$ 15,000.00	0.8734	$ 13,101.58
3	$ 15,000.00	0.8163	$ 12,244.47
4	$ 15,000.00	0.7629	$ 11,443.43
5	$ 15,000.00	0.7130	$ 10,694.79
6	$ 15,000.00	0.6663	$    9,995.13
7	$ 15,000.00	0.6227	$    9,341.25
8	$ 15,000.00	0.5820	$    8,730.14
9	$ 15,000.00	0.5439	$    8,159.01
10	$ 15,000.00	0.5083	$    7,625.24
11	$ 15,000.00	0.4751	$    7,126.39
11	$ 12,000.00	0.4751	$    5,701.11
NPV	$ 65,181.23

Part B:

As NPV >0, Return from Investment is greater than Required Ret.

OPtion A - Yes is correct

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