Question

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?

Answer 1

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.