Question

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Park co is considering an investment that requires immediate payment of $26120 and provides expected cash inflows of 8600 annually for four years. Assume park co. requires a 10% return on investments.
What is the net present value of this investment? (PV Of $1. FV of $1, P A of $1, and FVA of $1. Round your present value factor to 4 declmals.)

Answer 1

$1140.28

Explanation:

The computation of the net present value of this investment is shown below:-

= Annual Cash flows × Present Value of Annuity Factor (r , n) - Initial Investment

as

Annual cash flows = $8600

Present Value of Annuity Factor (r , n)

r = 10% and n = 4 years

So, the Present Value of Annuity Factor will be the sum of the present value of 4 years at 10%

For Year 1 = 0.9091

For Year 2 = 0.8264

For Year 3 = 0.7513

For Year 4 = 0.6830

Total = 3.1698

Therefore,

Net Present Value = (Cash inflow × Total) -

Initial Investment

= ($8600 × 3.1698) - $26,120

= $27,260.28 - $26,120

= $1140.28