Question

Below is a table for the present value of $1 at Compound interest.

Year	6%	10%	12%
1	0.943	0.909	0.893
2	0.890	0.826	0.797
3	0.840	0.751	0.712
4	0.792	0.683	0.636
5	0.747	0.621	0.567

Below is a table for the present value of an annuity of $1 at compound interest.

Year	6%	10%	12%
1	0.943	0.909	0.893
2	1.833	1.736	1.690
3	2.673	2.487	2.402
4	3.465	3.170	3.037
5	4.212	3.791	3.605

Using the tables above, if an investment is made now for $17,700 that will generate a cash inflow of $5,900 a year for the next 4 years, what would be the net present value (rounded to the nearest dollar) of the investment, assuming an earnings rate of 10%?

$1,003

$18,703

$17,700

$5,900

Answer 1

Net present value (rounded to the nearest dollar) of the investment, assuming an earnings rate of 10% is $1,003

Investment	Year 0	Year 1	Year 2	Year 3	Year 4	Total
Initial Investment	($17,700)					($17,700)
Net cash flow		5,900	5,900	5,900	5,900	$23,600
Net cash flow	($17,700)	$5,900	$5,900	$5,900	$5,900	$5,900
Life 4 years
Required Rate of Return is 10%
Present Value factor	1	0.909	0.826	0.751	0.683
Present Value of Cash outflow	-17,700	5,364	4,876	4,433	4,030	$1,002
Net Present value	-17,700	5,364	4,876	4,433	4,030	$1,002