Park Co. is considering an investment that requires immediate payment of $21,705 and provides expected cash inflows of $6,700 annually for four years. Assume Park Co. requires a 7% return on its investments.

Required:

What is the net present value of this investment?

The net present value of this investment is $989.32

Explanation:

The Net Present Value is calculated by taking the Present Day (discounted) value of all future net cash flows based on the business cost of capital and subtracting the initial cost of investment.

Input Value Cash flow

CF0 ($21,705)

CF1 $6,700

CF2 $6,700

CF3 $6,700

CF4 $6,700

Cost of Capital = 7%

Input the values in a financial calculator we get the result;

Net present value = $989.3154

= $989.32

Conclusion:

The net present value of this investment is $989.32