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Joe just inherited the family business, and having no desire to run the family business, he has decided to sell it to an entrepreneur. In exchange for the family business, Joe has been offered an immediate payment of $100,000. Joe will also receive payments of $50,000 in one year, $50,000 in two years, and $75,000 in three years. The current market rate of interest for Joe is 6%.
-You have been offered the following investment opportunity: if you pay $2,500 today,you will receive $1,000 at the end of each of the next three years.Assuming that you could otherwise earn 10% per year on your money,the NPV for this opportunity is closest to:
A) $12
B) $18
C) -$13
D) $500

Question

Quizplus · Accepted Answer

C) NPV = -2,500 + 1,000 / (1.10)¹ + 1,000 / (1.10)² + 1,000 / (1.10)³ = -13.15 which is approximately -$13

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