An investment that costs $20,000 will produce annual cash flows of $5,000 for a period of 6 years.Further,the investment has an expected salvage value of $3,000.Given a desired rate of return of 12%,what will the investment generate? (Do not round your intermediate calculations.Round your answer to the nearest whole dollar. )

Question

Quizplus · Accepted Answer

To calculate the net present value, we need to discount each cash flow to its present value and then subtract the initial investment. Using a financial calculator or excel, we can find the discounted present value of the cash flows and salvage value to be $19,042.77. 
- NPV = PV of Cash Flows - Initial Investment
- NPV = $19,042.77 - $20,000
- NPV = -$957.23
Since the NPV is negative, the investment will not generate the desired rate of return of 12%. Therefore, we should not invest in this project.

An Investment That Costs $20,000 Will Produce Annual Cash Flows