Question

An investor can purchase a small business today for $313,650.00. The investor plans on holding the business for three years, and wants a 18.00% annual return on his investment. He feels he can sell the business for $376,650.00 in three years. In addition, he also believes he can create an annual cash flow of $39,150.00 over the next three years from operating the business. Should the investor purchase the small business today? (Yes or No)

Answer 1

We have to compute the NPV of the project
Year	Cashflow	PVIF @ 18%	Present value
0	$(313,650.00)	1.0000	$(313,650.00)
1	$    39,150.00	0.8475	$    33,177.97
2	$    39,150.00	0.7182	$    28,116.92
3	$ 415,800.00	0.6086	$ 253,068.72
NPV =			$         713.60
NPV=			$         713.60
Since NPV is positive therefore yes project should be selected