Question

You have an opportunity to invest

$50,700

now in return for

$59,300

in one year. If your cost of capital is

8.3%​,

what is the NPV of this​ investment?

The NPV will be

​(Round to the nearest​ cent.)

Answer 1

1) NPV of the investment can be computed as follows :
$50,700 will be the outflow now i.e. Year 0
The cash inflow at the end of year 1 is $59,300, however, since this is received after 1 year, the value as of now will be derived
after discounting it at a rate. This rate will be the cost of capital = 8.3%
Hence, the discounting factor is 8.3%, arrived as follows :
=1/(1+r)^t
r = discounting rate
t = the period after which the cash flow is received
= 1/(1+0.083)^1
0.923361034
Multiply 59,300 with 0.9233
=59,300 x 0.9233
54751.69
PV of 59,300 = 54,751.69
NPV of the investment = 54,751.69 - 50,700
Hence, NPV is $ 4,051.69