Question

If $11,000 is invested in a certain business at the start of the​ year, the investor...

If $11,000 is invested in a certain business at the start of the​ year, the investor will receive $3,300 at the end of each of the next four years. What is the present value of this business opportunity if the interest rate is 5​% per​ year? a. 351 b.702 c.842 D.1,123

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Answer #1

Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

  • Press the CF button.
  • CF0= -$11,000. It is entered with a negative sign since it is a cash outflow.
  • Cash flow for all the years should be entered.
  • Press Enter and down arrow after inputting each cash flow.
  • After entering the last cash flow, press the NPV button and enter the interest rate of 5%.
  • Press the down arrow and CPT buttons to get the net present value.  

Net Present value of cash flows at 5% interest rate is $701.6367 $702

Hence, the answer is option b.

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