Question

In: Finance

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

Marian Plunket owns her own business and is considering an investment. If she undertakes the​ investment, it will pay $16,000 at the end of each of the next 3 years. The opportunity requires an initial investment of $ 4,000 plus an additional investment at the end of the second year of $ 20,000. What is the NPV of this opportunity if the interest rate is 10% per​ year? Should Marian take​ it?

The NPV of this opportunity is $____

​Should Marian make the​ investment?

Solutions

Expert Solution

Ans $15522.67

Year Project Cash Flows (i) DF@ 10% DF@ 10% (ii) PV of Project A ( (i) * (ii) )
0 -4000 1 1                      (4,000.00)
1 16000 1/((1+10%)^1) 0.826                     13,223.14
2 -20000 1/((1+10%)^2) 0.683                    (13,660.27)
2 16000 1/((1+10%)^2) 0.683                     10,928.22
3 16000 1/((1+10%)^3) 0.564                       9,031.58
TOTAL CASH INFLOW                     15,522.67

Since NPV is positive, investment must be made.


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