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Marian Plunket owns her own business and is considering an investment. If she undertakes the​ investment,...

Marian Plunket owns her own business and is considering an investment. If she undertakes the​ investment, it will pay $5,560 at the end of each of the next 33 years. The opportunity requires an initial investment of $1,390 plus an additional investment at the end of the second year of $6,950. What is the NPV of this opportunity if the interest rate is 2.4% per​ year? Should Marian take​ it?

What is the NPV of this opportunity if the interest rate is2.4%per​ year?

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Answer #1

Interest rate = 2.4%

Period = 33 years

Cash inflow each year = $5,560

Present value of cash inflows = $5,560*(((1-((1+0.024)^-33)))/0.024) = $125,749.84

Initial Investment = $1,390

Additional Investment = $6,950

Present Value of Additional Investment = $6,950*(1/(1+0.024)^2) = $6,628.04

Present Value of Total Investments = $1,390 + $6,628.04 = $8,018.04

Net Present Value = $125,749.84 - $8,018.04 = $117,731.8

Marian should take the opportunity

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