Question

Odeletta Corporation is considering an investment of $ 516000 in a land development project. The investment will yield cash inflows of $ 216000 per year for five years. The company uses a discount rate of​ 9%. What is the net present value of the​ investment?

What is the net present value of the​ investment?

Answer 1

$324,175.20

Step-by-step explanation:

The computation of the Net present value is shown below

= Present value of all yearly cash inflows after applying discount factor - initial investment

where,

The initial investment is $516,000

And the present value would be

= Annual year cash inflows × PVIFA for five years at 9%

= $216,000 × 3.8897

= $840,175.20

Refer to the PVIFA table

Now the net present value would be

= $840,175.20 - $516,000

= $324,175.20