Use the following to answer questions .
Exhibit: Investment Projects

-(Exhibit: Investment Projects) If the market interest rate is 13%, what is the amount of planned investment expenditure?

Question

Use the following to answer questions .
Exhibit: Investment Projects
 
-(Exhibit: Investment Projects) If the market interest rate is 13%, what is the amount of planned investment expenditure?

Quizplus · Accepted Answer

To calculate the planned investment expenditure, we need to add the present value of each year's cash inflow(-) outflow. For example, for year 1, the present value of cash inflow is $1,200/(1+0.13) = $1,062.83 and the present value of cash outflow is $800/(1+0.13) = $707.96. So the net present value for year 1 is $1,062.83 - $707.96 = $354.87. Similarly, we can calculate the net present value for year 2 and year 3. Then adding all three net present values, we get $2,000 which is the planned investment expenditure.

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