Question

You have an opportunity to invest $50,400 now in refurn for $60,700 in one year If your cost of capital is 7.6%, what is the NPV of this investment? The NPV will be $ (Round to the nearest cent)

Answer 1

The NPV of the investment, which involves investing $50,400 now to receive $60,700 in one year at a cost of capital of 7.6%, is $6,009.29.

Step-by-step explanation:

The question asks to calculate the Net Present Value (NPV) of an investment where $50,400 is invested now to receive $60,700 in one year, given a cost of capital of 7.6%. To find the NPV, we discount the future cash flow to its present value and subtract the initial investment.

The formula for the present value (PV) is:

PV = FV / (1 + r)^n

Where FV is the future value, r is the discount rate (cost of capital in this case), and n is the number of periods.

For this question:

FV = $60,700
r = 7.6% or 0.076
n = 1 year

So, PV = $60,700 / (1 + 0.076) = $60,700 / 1.076 = $56,409.29 (rounded to two decimal places)

The NPV is the PV minus the initial investment:

NPV = PV - Initial Investment

NPV = $56,409.29 - $50,400 = $6,009.29

Therefore, the NPV of this investment is $6,009.29.