Question

Park Co. is considering an investment that requires immediate payment of $34,000 and provides expected cash inflows of $11,800 annually for four years. If Park Co. requires a 10% return on its investments. 1-a What is the net present value of this investment?(FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Answer 1

NPV = 3,404.41

Step-by-step explanation:

We will calculate the net present value doing:

NPV = present value of the cash flow - investment

Investment = 34,000

Now we need to discount each cash flow at the given rate.

For that, we will treat the cash flow as an annuity of 11,800 for 4 year at 10% rate:

`C * (1-(1+r)^(-time) )/(rate) = PV\\`

C 11800

time 4

rate 0.1

`11800 * (1-(1+0.1)^(-4) )/(0.1) = PV\\`

PV $37,404.41

NPV = present value of the cash flow - investment

NPV = 37,404.41 - 34,000 = 3,404.41