Question

Susanne invests \$8,000 now and again towards the end of year 3. She gets a following...

Susanne invests \$8,000 now and again towards the end of year 3. She gets a following return for 6 years.

 Year 0 1 2 3 4 5 6 Cash Flow 0 1,000 2,000 4,000 4,000 5,000 5,000

Assume Discount rate is 8%, answer the following:

What is the Net Present Value of these cash flows? Should Susanne make invest in this opportunity?
What is the future value of Net Cash Flow (end of year 6)?
If Susanne had another opportunity where her NPV would be \$2000. What is her opportunity cost?

 Discount rate 8.000% Year 0 1 2 3 4 5 6 Cash flow stream -8000 1000 2000 -4000 4000 5000 5000 Discounting factor 1.000 1.080 1.166 1.260 1.360 1.469 1.587 Discounted cash flows project -8000.000 925.926 1714.678 -3175.329 2940.119 3402.916 3150.848 NPV = Sum of discounted cash flows NPV Project = 959.16 Where Discounting factor = (1 + discount rate)^(Corresponding period in years) Discounted Cashflow= Cash flow stream/discounting factor

FV of NPV

 Future value = present value*(1+ rate)^time Future value = 959.16*(1+0.08)^6 Future value = 1522.07

opportunity cost is the NPV of the project = 2000