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10 January, 00:15

If $10,000 is invested in a certain business at the start of the year, the investor will receive $3000 at the end of each of the next four years. What is the present value of this business opportunity if the interest rate is 7% per year

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  1. 10 January, 00:24
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    Net Present Value = $161.63

    Explanation:

    Giving the following information:

    $10,000 is invested in a certain business at the start of the year.

    The investor will receive $3000 at the end of each of the next four years.

    Interest rate = 7%

    To calculate the net present value, we need to use the following formula:

    NPV = - Io + ∑[Cf / (1+i) ^n]

    Cf = cash flow = 3,000

    n = 4

    -Io = - 10,000

    i=0. p7

    NPV = - 10,000 + (3,000/1.07) + (3,000/1.07^2) + (3,000/1.07^3) + (3,000/1.07^4)

    NPV = - 10,000 + $10,161.63

    NPV = $161.63
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