Question

FGH Company has two investment opportunities. Both investments cost $6,600 and will provide the same total future cash inflows. The cash receipt schedule for each investment is given below: Investment I Investment II Period 1 $ 1,800 $ 1,800 Period 2 1,800 2,960 Period 3 2,800 4,120 Period 4 5,280 2,800 Total $ 11,680 $ 11,680 What is the net present value of Investment II assuming an 12% minimum rate of return?

Answer 1

Answer:

$2,078.82

Explanation:

The net present value is the cost of an investment substracted from the value of the after tax cash flows.

The NPV can be calculated using a financial calculator.

Cash flow for year 0 = -$6,600

Cash flow for year 1=$1,800

Cash flow for year 2=$2,960

Cash flow for year 3=$4,120

Cash flow for year 4=$2800

I = 12%

NPV =$2,078.82

I hope my answer helps you