Cheryl Peck purchased a computer network for her classroom.The computer network cost $100,000.She estimates that she can charge $500 for one session in the classroom.Cheryl knows that enrollment will increase over time.She estimates 50 students the first year,75 students the second year,100 students the third year,and 150 students the fourth year.If her cost of capital is 12 percent,what is the approximate net present value of her investment?

Question

Quizplus · Accepted Answer

The correct answer is A. The net present value of the investment is $87,500. This is calculated by taking the present value of the cash inflows and subtracting the present value of the cash outflows. The cash inflows are the revenue from the students, and the cash outflows are the cost of the computer network. The present value of the cash inflows is calculated by multiplying the cash inflows by the present value factor. The present value factor is calculated by dividing 1 by (1 + r)^n, where r is the cost of capital and n is the number of years. The present value of the cash outflows is calculated by multiplying the cash outflows by the present value factor. The present value of the cash inflows is $187,500, and the present value of the cash outflows is $100,000. The net present value is $87,500.

Cheryl Peck Purchased a Computer Network for Her Classroom