Consider an individual who will invest a total of $10,000 in direct and indirect costs for training in order to increase earnings by $12,500 for the next year.Suppose the interest rate is 8%.If this person plans to retire the following year,the net present value of this investment is closest to:

Question

Quizplus · Accepted Answer

The net present value (NPV) of the investment can be calculated by subtracting the initial investment from the present value of future earnings, discounted back at the given interest rate. The present value of the future earnings of $12,500 discounted back one year at 8% is $12,500 / (1 + 0.08) = $11,574.07. Subtracting the initial investment of $10,000 gives an NPV of $11,574.07 - $10,000 = $1,574.07, which is closest to $1,600.

Consider an Individual Who Will Invest a Total of $10,000