Homework Answers
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=7,000,000/1.18+7,000,000/1.18^2+7,000,000/1.18^3+7,000,000/1.18^4+7,000,000/1.18^5
=21890197.15
NPV=Present value of inflows-Present value of outflows
=21890197.15-21,000,000
=$890197(Approx)
Hence since NPV is positive;facility should be purchased.
Hence the correct option is:
$890197;Yes
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