S12-10 (similar to) Question Help Denton Music is considering investing $700,000

Question

S12-10 (similar to) Question Help Denton Music is considering investing $700,000 in private lesson studios that will have no residual value. The studios are expected to result in annual net cash inflows of $90,000 per year for the next nine years. Assuming that Denton Music uses a 12% hurdle rate, what is the net present value (NPV) of the studio investment? Is this a favorable investment? (Click the icon to view the present value of an annuity table.) (Click the icon to view the future value of an annuity table.) (Click the icon to view the present value table.) (Click the icon to view the future value table.) (Round your answer to the nearest whole dollar. Use parentheses or a minus sign for a negative net present value.) The net present value of the studio investment is S

Explanation / Answer

Net Present Value of the studio Investment = - $2,20,458 (Negative)

Net Present Value    = - $7,00,000 + $90,000(PVAF 12%, 9 Years)

= - $7,00,000 + ($90,000 x 5.32825)

= - $7,00,000 + $4,79,542

Net Present Value    = - $2,20,458 (Negative)

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