Mr. Dell has $100 income this year and zero income next year. The market interest rate is
10% per year. Mr. Dell also has an investment opportunity in which he can invest $50 this year and receive $80 next year. Suppose Mr. Dell consumes $50 this year and invests in the project. What is the NPV of the investment opportunity?

Question

Quizplus · Accepted Answer

The NPV of the investment opportunity is $22.73. This is calculated as follows:NPV = -50 + 80/(1+0.1) = -50 + 80/1.1 = -50 + 72.73 = $22.73

Mr Dell Has $100 Income This Year and Zero Income