An investment has an installed cost of $530,800. The cash flows over the four-ye

Question

An investment has an installed cost of $530,800. The cash flows over the four-year life of the investment are projected to be $218,850, $235,450, $202,110, and $150,820. If the discount rate is zero, what is the NPV? (Do not round intermediate calculations.) NPV $ If the discount rate is infinite, what is the NPV? (Negative amount should be indicated by a minus sign.) NPV $ At what discount rate is the NPV just equal to zero? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR %

Explanation / Answer

If the discount rate is zero,

NPV = Aggregate of cash flows – Initial investment

         = (218,850 + 235,450 + 202,110 + 150,820) – 530,800

         = 807,230 – 530,800

         = $276,430 (Answer)

If the discount rate is infinite, the value of the future cash flows would be 0.

NPV = -Initial investments

         = -$530,800 (Answer)

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