Park Co. is considering an investment that requires immediate payment of $34,000 and provides expected cash inflows of $11,800 annually for four years. If Park Co. requires a 10% return on its investments. 1-a What is the net present value of this investment?(FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Question

contestada

Respuesta :

TomShelby TomShelby · Answer 1 · 2019-08-27T21:33:18+02:00

Answer:

NPV = 3,404.41

Explanation:

We will calculate the net present value doing:

NPV = present value of the cash flow - investment

Investment = 34,000

Now we need to discount each cash flow at the given rate.

For that, we will treat the cash flow as an annuity of 11,800 for 4 year at 10% rate:

[tex]C \times \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]

C 11800

time 4

rate 0.1

[tex]11800 \times \frac{1-(1+0.1)^{-4} }{0.1} = PV\\[/tex]

PV $37,404.41

NPV = present value of the cash flow - investment

NPV = 37,404.41 - 34,000 = 3,404.41