Question

Marian Plunket owns her own business and is considering an investment. If she undertakes the​ investment, it will pay $12000 at the end of each of the next 3 years. The opportunity requires an initial investment of $3000 plus an additional investment at the end of the second year of $15000. What is the NPV of this opportunity if the interest rate is 9 % per​ year? Should Marian take​ it?

Answer 1

Ans NPV is $ 14750.34

Since, NPV is positive, Marian should take the investment and invest in it.

Year	Project Cash Flows (i)	DF@ 9%	DF@ 9% (ii)	PV of Project A ( (i) * (ii) )
0	-3000	1	1	(3,000.00)
1	12000	1/((1+9%)^1)	0.917	11,009.17
2	-3000	1/((1+9%)^2)	0.842	(2,525.04)
3	12000	1/((1+9%)^3)	0.772	9,266.20
		TOTAL		14,750.34
	In second years, Net cash flow=	12000 - 15000
		-3000