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27 July, 14:14

Compute the net present value of an investment with 5 years of annual cash inflows of $100 and two cash outflows, one today of $100 and one at the beginning of the second year of $50. Use a discount rate of 10 percent. a.$229.08b.$287.60c.$233.62d.$271.53

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  1. 27 July, 15:28
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    c.$233.62

    Explanation:

    The computation of the net present value is presented below:

    Net present value = Present value of cash inflows - present value of cash outflows

    where,

    Present value of cash inflows

    = Annual payment * PVIFA for 5 years at 10%

    = $100 * 3.7908

    = $379.08

    Refer to the PVIFA table

    And, the present value of cash outflows would be

    = One year amount + Second year amount * discount factor

    = $100 + $50 * 0.9091

    = $100 + 45.455

    = $145.455

    The discount factor is calculated below:

    = 1 : (1 + rate) ^ years
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Home » Business » Compute the net present value of an investment with 5 years of annual cash inflows of $100 and two cash outflows, one today of $100 and one at the beginning of the second year of $50. Use a discount rate of 10 percent. a.$229.08b.$287.60c.$233.62d.
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