QUESTION 38 Unit 5: Your real estate agent has found a great apartment investmen

Question

QUESTION 38

Unit 5: Your real estate agent has found a great apartment investment. The apartment will cost $400,000 to purchase. The forecast is for 3 years of after-tax ash flow: [1] $120,000; [2] $180.000; [3] $300,000. Using a discount rate of 17.5% is this proposed project a good investment?

Yes; the NPV = $64,172

Yes, the NPV = $17,434

No; the NPV = $18,324

No; the NPV = 0

No; the NPV = -$24,718.14

Yes; the NPV = $64,172

Yes, the NPV = $17,434

No; the NPV = $18,324

No; the NPV = 0

No; the NPV = -$24,718.14

Explanation / Answer

NPV> 0 so investment is good

answer is

Yes, the NPV = $17,434

Discount rate 17.500% Year 0 1 2 3 Cash flow stream -400000 120000 180000 300000 Discounting factor 1 1.175 1.380625 1.622234 Discounted cash flows project -400000 102127.7 130375.7 184930.1 NPV = Sum of discounted cash flows NPV B = 17433.52 Discounting factor = (1 + discount rate)^(CORRESPONDING PERIOD IN YEARS) Discounted Cashflow= Cash flow stream/discounting factor

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