Homework Answers
present value of cash outflows = $95,300.....(since immediately payable).
present value of cash inflows = amount to be received * PV factor
here,
pv factor = 1 /(1+r)^n
r = 8.1%
=>0.081.
n = 1 year.
=> present value of cash inflows = 98,000 * (1/(1.081)^1)
=>$90,656.80.
net present value of the offer = 90,656.80 - 95,300
=>-$4,643.20.
since npv is negative the contract shall be rejected.
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