Question

an investment costs $163,000 today and promises a series of $52,000 annual cash inflows in each of the next 4 years. the first cash inflow occurs one year from today. what is the net present value of this investment if the discount rate is 9%?

Answer 1

The net present value (NPV) of this investment, with a discount rate of 9%, is $5,338.28.

Step-by-step explanation:

The net present value (NPV) of an investment is the difference between the present value of the cash inflows and the present value of the initial investment. To calculate the NPV, we need to discount each cash inflow using the discount rate. In this case, the investment costs $163,000 and promises a series of $52,000 annual cash inflows for 4 years. The first cash inflow occurs one year from today. Considering a discount rate of 9%, the NPV can be calculated as follows:

1. Calculate the present value of each cash inflow: $52,000/(1+0.09)^1 = $47,715.60, $52,000/(1+0.09)^2 = $43,827.63, $52,000/(1+0.09)^3 = $40,144.32, $52,000/(1+0.09)^4 = $36,650.73
2. Add up the present values of all cash inflows: $47,715.60 + $43,827.63 + $40,144.32 + $36,650.73 = $168,338.28
3. Subtract the initial investment: $168,338.28 - $163,000 = $5,338.28

Therefore, the net present value of this investment, with a discount rate of 9%, is $5,338.28.