Following is a table for the present value of $1 at compound interest: Following is a table for the present value of an annuity of $1 at compound interest:
-Using the tables provided, if an investment is made now for $23,500 that will generate a cash inflow of $8,000 a year for the next 4 years, the net present value of the investment, assuming an earnings rate of 10%, is

Question

Following is a table for the present value of $1 at compound interest:  Following is a table for the present value of an annuity of $1 at compound interest:  ​
-Using the tables provided, if an investment is made now for $23,500 that will generate a cash inflow of $8,000 a year for the next 4 years, the net present value of the investment, assuming an earnings rate of 10%, is

Quizplus · Accepted Answer

The net present value (NPV) of an investment is calculated by discounting the future cash inflows back to their present value and then subtracting the initial investment. Using a discount rate of 10%, the present value of each $8,000 cash inflow for the next 4 years can be calculated using the present value formula or a present value table. Summing these present values gives the total present value of the cash inflows. Subtracting the initial investment of $23,500 from this total gives the NPV. The correct calculation leads to an NPV of $1,860, indicating that after accounting for the cost of the investment, there's a net gain in present value terms of $1,860.

Following Is a Table for the Present Value of $1