Fill in the Blank QuestionFill in the blank question.An investment that costs $5,000 will produce annual cash flows of $3,000 for 3 years. Using a required return of 8%, the investment will generate a NPV of $ (rounded to nearest dollar).Present Value of 1RatePeriods7%8%9%10.93460.92590.917420.87340.85730.841730.81630.79380.772240.76290.73500.708450.71300.68060.6499Present Value of an Annuity of 1RatePeriods7%8%9%10.93460.92590.917421.80801.78331.759132.62432.57712.531343.38723.31213.2397
Question
Fill in the Blank QuestionFill in the blank question.An investment that costs 3,000 for 3 years. Using a required return of 8%, the investment will generate a NPV of $ (rounded to nearest dollar).Present Value of 1RatePeriods7%8%9%10.93460.92590.917420.87340.85730.841730.81630.79380.772240.76290.73500.708450.71300.68060.6499Present Value of an Annuity of 1RatePeriods7%8%9%10.93460.92590.917421.80801.78331.759132.62432.57712.531343.38723.31213.2397
Solution
To solve this problem, we need to calculate the present value of the cash flows and subtract the initial investment to get the Net Present Value (NPV).
Step 1: Identify the annual cash flow, the number of periods, and the discount rate. In this case, the annual cash flow is $3,000, the number of periods is 3 years, and the discount rate is 8%.
Step 2: Look up the present value of an annuity factor for the given discount rate and number of periods. In the provided table, the present value of an annuity of 1 at an 8% rate for 3 periods is 2.5771.
Step 3: Multiply the annual cash flow by the present value of an annuity factor to calculate the present value of the cash flows. 7,731.3
Step 4: Subtract the initial investment from the present value of the cash flows to calculate the NPV. 5,000 = $2,731.3
So, the investment will generate a NPV of $2,731 (rounded to the nearest dollar).
Similar Questions
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