You are planning to acquire a business today and sell it in 3 years. The cash flows associated with this investment are: 256427 an expense of dollars in year zero; an expense of 40128 dollars in year 1; a receivable of 22758 dollars in year 2; a receivable of 38650 dollars in year 3. In addition, you expect to sell the business for 360323 dollars upon the last receivable. If the MARR (Minimum Acceptable Rate of Return) is 5% per year, compute the annual worth of this investment. (note: round your answer to the nearest cent, and do not include spaces, currency signs, or commas)
Present Value of an investment = CF_{n}/(1+r)^{n}
Where, CF_{n} is the cash flow in period n and r is the rate of return
The Networth of the project is the NPV which is the sum of Present value of all the cash flows
Time | Cash Flow | PV Factor | PV | |
0 | -256427 | 1.00 | -256427.00 | |
1 | -40128 | 0.95 | -38217.14 | |
2 | 22758 | 0.91 | 20642.18 | |
3 | 38650+360323 | 0.86 | 344647.88 | |
NPV | 70645.91 |
where, PV factor = 1/(1+r)^{n}
Hence, Annual worth of the investment = $70645.91
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