Edmundo Services is considering an investment of $25,000. Data related to the investment are as follows: Cost of capital is 14 percent.
What is the net present value of the investment, assuming no taxes are paid?

Question

Edmundo Services is considering an investment of $25,000. Data related to the investment are as follows:  Cost of capital is 14 percent.
What is the net present value of the investment, assuming no taxes are paid?

Quizplus · Accepted Answer

To calculate the net present value, we need to calculate the present value of cash inflows and outflows. In this case, there are no cash inflows, but there is an initial cash outflow of $25,000. Using the formula NPV = -initial investment + PV of cash inflows, we get:
NPV = -25,000 + 25,000/(1+0.14)^1
NPV = -25,000 + 21,906.95
NPV = $-3,093.05
Since the NPV is negative, it is not a good investment and should not be selected. Therefore, the best choice is not to invest in this opportunity.

Edmundo Services Is Considering an Investment of $25,000