Question

# An investment that costs \$32,000 will produce annual cash flows of \$10,680 for a period of...

An investment that costs \$32,000 will produce annual cash flows of \$10,680 for a period of 4 years. Given a desired rate of return of 8%, what will the investment generate? Use Appendix Table 2. (Do not round your intermediate calculations. Round your answer to the nearest whole dollar.)

A positive net present value of \$35,374.

A positive net present value of \$3,374.

A negative net present value of \$3,374.

A negative net present value of \$35,374.

Answer : A positive net present value of \$ 3,374.

Explanation:

i) Intial investment \$ 32,000

ii) cumulative present value of cash in flows :

Annual cash flow = \$ 10,680

Discount factor = 8%

Cumulative discount factor for four years = 3.312

(0.926+0.857+0.794+0.735)

Cumulative present value of cash inflow = 10,680\$* 3.312

= 35,372 \$

Net present value = ( cumulative cash in flows - initial cost )

= ( ( A ) - ( B ) )

=. ( 35,372 - 32000 )

= 3,372 \$ ( positive )

i.e ., 3,374 \$ the difference is due to fractions considered.

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