An investment under consideration has a payback of seven years and a cost of $875,000. assume the cash flows are conventional. if the required return is 11 percent, what is the worst-case npv?

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Business

Shania Holmes

10 October, 07:02

An investment under consideration has a payback of seven years and a cost of $875,000. assume the cash flows are conventional. if the required return is 11 percent, what is the worst-case npv?

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Jamarion Molina · Answer 1

Net present value (NPV) analysis is useful for determining the current value of a stream of cash flows that extend out into the future. To calculate net present value, we use the following formula:

NPV = X * [ (1+r) ^n - 1]/[r * (1+r) ^n]

Where:

X = The amount received per period

n = The number of periods

r = The rate of return

npv = 875,000 * [ (1+0.11) ^7 - 1]/[0.11 * (1+0.11) ^7]

= $ 7,954, 545