Below is a table for the present value of $1 at Compound interest. Below is a ta

Question

Below is a table for the present value of $1 at Compound interest.

Below is a table for the present value of an annuity of $1 at compound interest.

Using the tables above, if an investment is made now for $17,250 that will generate a cash inflow of $5,750 a year for the next 4 years, what would be the net present value (rounded to the nearest dollar) of the investment, assuming an earnings rate of 10%?

a.$978

b.$18,228

c.$17,250

d.$5,750

Year 6% 10% 12% 1 0.943 0.909 0.893 2 0.890 0.826 0.797 3 0.840 0.751 0.712 4 0.792 0.683 0.636 5 0.747 0.621 0.567

Explanation / Answer

Net present value = Present value of cash inflow-Present value of cash outflow

= (5750*3.17)-17250

Net present value = 978

So answer is a) $978

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