An asset that sells for $105,has a required rate of return of 10% and produces a cash flow of $120 in one year's time is a worthwhile investment.

Question

Quizplus · Accepted Answer

The investment has a positive net present value (NPV) which means it is worth investing in. The NPV can be calculated as follows:
- Present value of cash flow = $120 / (1+0.10) = $109.09
- NPV = Present value of cash flow - Initial cost = $109.09 - $105 = $4.09
Since the NPV is positive, it is a worthwhile investment.

An Asset That Sells for $105,has a Required Rate of Return