A car dealership offers a car for $14,000, with up to one year to pay. If the interest rate is 7%, what is the net present value (NPV) of this offer to buyers who elect not to pay for the car for one year?

Question

Quizplus · Accepted Answer

The net present value (NPV) of an investment is the present value of the future cash flows minus the initial investment. In this case, the initial investment is $14,000 and the future cash flow is $0 (since the buyer does not have to pay for the car for one year). The interest rate is 7%, so the present value of the future cash flow is $0 * (1 + 0.07)^-1 = $0. Therefore, the NPV of this offer is $14,000 - $0 = $14,000.

A Car Dealership Offers a Car for $14,000, with Up