Question

An investment that costs $28,000 will produce annual cash flows of $5,600 for a period of 6 years. Further, the investment has an expected salvage value of $3,300. Given a desired rate of return of 10%, what will the investment generate?

Answer 1

-1764

Step-by-step explanation:

Given the cost of investment = $28000

Annual cash flow = $5600

Time period = 6 years

Salvage value = $3300

Interest rate = 10%

Net gain from the investment and its present value = Annuity (P/A, r, n) + Salvage value (P/F, r, n) - investment

= 5600 (P/A, 10%, 6) + 3300 (P/F, 10%, 6) - 28000

= 5600 x 4.355 + 3300 x 0.56 - 28000

= -1764