Question

If $ 9 comma 000 is invested in a certain business at the start of the​ year, the investor will receive $ 2 comma 700 at the end of each of the next four years. What is the present value of this business opportunity if the interest rate is 3​% per​ year? A. $ 1 comma 036 B. $ 1 comma 243 C. $ 1 comma 658 D. $ 518

Answer 1

NPV= 1,036.16

Step-by-step explanation:

Giving the following information:

Initial investment= $9,000

Cash flows= $2,700 at the end of each of the next four years.

Interest rate= 3%

To calculate the net present value (NPV), we need to use the following formula:

NPV= -Io + ∑[Cf/(1+i)^n]

Cf1= 2,700/1.03= 2,621.36

Cf2= 2,700/1.03^2= 2,545

Cf3= 2,700/1.03^3= 2,470.88

Cf4= 2,700/1.03^4= 2,398.92

Total= 10,036.16

NPV= -9,000 + 10,036.16

NPV= 1,036.16