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.
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
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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