Question

An investment that costs $36,000 will produce annual cash flows of $12,040 for a period of 4 years. Given a desired rate of return of 10%, the investment will generate a _________ .
(Do not round your PV factors and intermediate calculations. Round your answer to the nearest whole dollar)

Answer 1

Answer:

NPV of $2,165.18

Explanation:

The first basic method of evaluating a project is through Net Present value Method

Here, Present Value of cash outflow = $36,000

Present value of cash inflow at the discount rate of 10%

Present value discount rate factor for 4 years = 3.169865

Cash inflow each year = $12,040

Present value of inflow for 4 years = $12,040 $\times$ 3.169865

= $38,165.18

Net Present Value = PV of cash inflow - PV cash outflow = $38,165.18 - $36,000 = $2,165.18