Question

Marian Plunket owns her own business and is considering an investment. If she undertakes the​ investment, it will pay

$5,320

at the end of each of the next

33

years. The opportunity requires an initial investment of

$1,330

plus an additional investment at the end of the second year of

$6,650.

What is the NPV of this opportunity if the interest rate is

1.8 %

per​ year? Should Marian take​ it?

What is the NPV of this opportunity if the interest rate is

1.8 %

per​ year? The NPV of this opportunity is

​(Round to the nearest​ cent.)

Answer 1

Cashflow table

Year	0	2	1-33
Investment	(1,330.00)	(6,650.00)
Annual cashflows			5,320.00
Net cashflows	(1,330.00)	(6,650.00)	5,320.00
PV factor @ 1.8% --> Formula --> Year 0 and 2 --> 1/(1+1.8%)^nth year Formula for 33 year annuity --> (1-(1+1.8%)^-33)/1.8%	1.0000	0.9649	24.7201
PV of cashflows (Net cashflows x PV factor)	(1,330.00)	(6,416.91)	131,510.76
NPV	123,763.85

Since NPV of the project is positive, Marian Plunket can invest in the project.  

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