Scenario: An investment of $20,000 offers a return of $15,000 in 10 years and another return of $15,000 after 15 years. The market rate of interest is 6 percent per year.
-Refer to the scenario above.What is the net present value of the investment?

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the future cash flows to the present value using the market rate of interest. The NPV is the sum of these present values minus the initial investment. Here, the present value of $15,000 received in 10 years is $8,375.92 and in 15 years is $6,258.98. Subtracting the initial investment of $20,000 gives an NPV of ‒$5,365.10.

Scenario: an Investment of $20,000 Offers a Return of $15,000