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The initial cost of an investment is $65,000 and the cost of capital is 10%. The...

The initial cost of an investment is $65,000 and the cost of capital is 10%. The return is $16,000 per year for 8 years. What is the net present value?

Please do not use excel.

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Homework Answers

Answer #1

We'll use the following steps in order to calculate the Net Present Value:

1. Write the cash flows for years 0-8

2. Compute discount factor for each cash flow. This done by the formula 1/(1+r)n where r is the rate of interest and n is the year.

3. Calculate the Discounted cash flow by finding the product of cash flow and its corresponding discount factor.

4. Add all the discounted cash flows to calculate Net Present Value.

The Net present value for the given investment is = $20358.8192

For illustrative purpose only, the values are shown in the table below.

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