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28 February, 21:32

Using the tables above, if an investment is made now for $20,000 that will generate a cash inflow of $8,000 a year for the next 4 years, what would be the net present value (rounded to the nearest dollar) of the investment, (assuming an earnings rate of 10%) ? a. $25,360 b. $5,360 c. $4,296 d. $352

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  1. 28 February, 21:50
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    b. $5,360

    Explanation:

    Using a financial calculator with CF function, find the Net present value (NPV) of this projects cashflows;

    Initial investment; CF0 = - 20,000

    Yr 1 cash inflow; C01 = 8,000

    Yr 2 cash inflow; C02 = 8,000

    Yr 3 cash inflow; C03 = 8,000

    Yr 4 cash inflow; C04 = 8,000

    and annual interest rate; I/Y = 10%

    then compute net present value; CPT NPV = 5,358.924

    Therefore, the NPV will be closest to $5,360
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