An upfront investment costs $10,000 but will return $1,500 in annual cashflows for 10 years. Your desired rate of return on the investment is 8%. What is the net present value of the investment (small differences may exist due to rounding)? Use the TVM Calculation Template in Excel to calculate.
Multiple Choice
$65
$10,000
$250
$115
Option A: $ 65
Calculation:
Period | Cash flows |
0 | $ (10,000) |
1 | $ 1,500 |
2 | $ 1,500 |
3 | $ 1,500 |
4 | $ 1,500 |
5 | $ 1,500 |
6 | $ 1,500 |
7 | $ 1,500 |
8 | $ 1,500 |
9 | $ 1,500 |
10 | $ 1,500 |
NPV | $ 65 |
Working Note:
Hence,
Option 'A' is correct and rest all are incorrect.
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