An orcharder spends $100,000 to plant pomegranate bushes.It will take four years for the bushes to provide a usable crop.He estimates that every year for 20 years after that he will receive a crop worth $10,000 per year.If the discount rate is 8%,what is the net present value (NPV)of this investment?

Question

Quizplus · Accepted Answer

The NPV is calculated by discounting the future cash flows back to the present value using the formula: NPV = ∑ (Cash flow / (1 + r)^t) - initial investment. Here, the cash flows are $10,000 per year for 20 years starting from year 5, and the discount rate is 8%. The initial investment is $100,000. Calculating this gives an NPV of approximately -$27,834.

An Orcharder Spends $100,000 to Plant Pomegranate Bushes