Exercise 9-8 An investment that costs $77,000 will return $39,000 per year for 7
ID: 2445184 • Letter: E
Question
Exercise 9-8 An investment that costs $77,000 will return $39,000 per year for 7 years.
Determine the net present value of the investment if the required rate of return is 8 percent. (Ignore taxes.) (Round present value factor calculations to 4 decimal places, e.g. 1.2151 and final answer to 0 decimal places, e.g. 125.Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Net present value $=
Should the investment be undertaken?
The investment should / notshould be undertaken.
Explanation / Answer
Computation of NPV
Years Cash inflows Discount@8% Present value of cash inflows
1 39000 0.926 36114
2 39000 0.857 33423
3 39000 0.794 30966
4 39000 0.735 28665
5 39000 0.681 26559
6 39000 0.630 24570
7 39000 0.584 22776
Total cash inflows 203073
- initial investment (77000)
NPV 126073
NPV is better .the ivestment should be undertaken.
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