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What is the net present value of an investment that costs you $10,000 today (at 2%...

What is the net present value of an investment that costs you $10,000 today (at 2% interest) and pays you a net return of $1000 for the next twelve years?

Solutions

Expert Solution

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=1000/1.02+1000/1.02^2+1000/1.02^3+1000/1.02^4+1000/1.02^5+1000/1.02^6+1000/1.02^7+1000/1.02^8+1000/1.02^9+1000/1.02^10+1000/1.02^11+1000/1.02^12

=10575.34

NPV=Present value of inflows-Present value of outflows  

=10575.34-10,000

=$575.34(Approx)

jeff jeffy answered 2 years ago
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