A car dealership offers a car for $14,000,with up to one year to pay for the car.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) 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 flows are the payments that the buyer will make over the next year. The interest rate is 7%, so the present value of the future cash flows is $14,000 * (1 - (1 + 0.07)^-1) / 0.07 = $13,084. Therefore, the NPV is $13,084 - $14,000 = -$916.

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