Question

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

Answer 1

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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