A project requires a $30,000 investment and is expected to generate end-of-period annual cash inflows as follows: Year 1 Year 2 Year 3 Total $12,000 $8,000 $10,000 $30,000 Assuming a discount rate of 10%, what is the net present value of this investment

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Business

Lawrence Hood

7 April, 05:38

A project requires a $30,000 investment and is expected to generate end-of-period annual cash inflows as follows: Year 1 Year 2 Year 3 Total $12,000 $8,000 $10,000 $30,000 Assuming a discount rate of 10%, what is the net present value of this investment

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Gunner Gibson · Answer 1

-$4966.19

Explanation:

The net present value of the investment is the present value of cash inflows discounted at the discount rate of 10% minus the initial invested amount of $30,000.

The formula for discounting the inflows=1 / (1+r) ^n

r is the discount rate of 10%

n relates to the year of cash flow

net present value=$12,000 / (1+10%) ^1+$8,000 / (1+10%) ^2+$10,000 / (1+'10%) ^3-$30,000 / (1+10%) ^0=-$4966.19

The net present value is $-4966.19, which signals that the project is not viable and should be done away with