Question

Marian Plunket owns her own business and is considering an investment. If she undertakes the​investment, it will pay $5,680 at the end of each of the next 3 years. The opportunity requires an initial investment of $1,420 plus an additional investment at the end of the second year of $7,100. What is the NPV of this opportunity if the interest rate is 1.7 % per​ year? Should Marian take​ it?

Answer 1

Statement showing Cash flows
Particulars	Time	PVf 1.7%	Amount	PV
Cash Outflows	-	1.0000	(1,420.00)	(1,420.00)
Cash Outflows	2.00	0.9668	(7,100.00)	(7,100.00)
PV of Cash outflows = PVCO				(8,520.00)
Cash inflows	1.00	0.9833	5,680.00	5,585.05
Cash inflows	2.00	0.9668	5,680.00	5,491.70
Cash inflows	3.00	0.9507	5,680.00	5,399.90
PV of Cash Inflows =PVCI				16,476.65
NPV= PVCI - PVCO				7,956.65
Yes Marian should take it as NPV is positive