Question

If $ 10,000 is invested in a certain business at the start of the​ year, the investor will receive $ 3 comma 000 at the end of each of the next four years. What is the present value of this business opportunity if the interest rate is 4​% per​ year?

Answer 1

$889.70

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 $10,000

All yearly cash flows would be

= Annual amount received × PVIFA for 4 years at 4%

= $3,000 × 3.6299

= $10,889.70

Refer to the PVIFA table

So, the net present value is

= $10,889.70 - $10,000

= $889.70