Question

A project requires a $30,000 investment and is expected to generate end-of-period annual cash inflows as follows: Year 1 Year 2 Year 3 Total $12,000 $8,000 $10,000 $30,000 Assuming a discount rate of 10%, what is the net present value of this investment

Answer 1

-$4966.19

Step-by-step explanation:

The net present value of the investment is the present value of cash inflows discounted at the discount rate of 10% minus the initial invested amount of $30,000.

The formula for discounting the inflows=1/(1+r)^n

r is the discount rate of 10%

n relates to the year of cash flow

net present value=$12,000/(1+10%)^1+$8,000/(1+10%)^2+$10,000/(1+`10%)^3-$30,000/(1+10%)^0=-$4966.19

The net present value is $-4966.19,which signals that the project is not viable and should be done away with