Question

Problem S7.34 Question Help The annual profit from an investment is $20,000 each year for 5 years and the cost of investment is $70,000 with a salvage value of $50,000. The cost of capital at this risk level is 14% Based on the given information, the net present value of the investment $1(round your response to the nearest whole number).

Answer 1

B C D E F G 3 4 -70000 2 Year 3 Initial investment 4 Profit 5 Salvage value 6 Total cash flow 20000 20000 20000 20000 20000 50000 -70000 20000 20000 20000 20000' 70000 7 -70000 17543.86 15389.35 13499.43 11841.61 36355.81 14% 8 Discounted cash flow 9 Cost of capital 10 11 Net present value 12 24630

Based on the given information, the net present value of the investment = $24630

Formula

E F -70000 20000 20000 20000 20000 20000 50000 =SUM(G3:45) =SUM(B3:35) =SUM(C3:05) SUM(D3:05) -SUM(E3:15) -SUM(F3:F5) 2 Year 3 Initial investment 4 Profit 5 Salvage value 6 Total cash flow 7 8 Discounted cash flow 9 Cost of capital 10 11 Net present value 12 =C6/(1+$B$9)^C2 =D6/(1+$B$9)^D2 =E6/(1+$B$9) E2 =F6/(1+$B$9)^F2 =G6/(1+$B$9)^G2 =B6/(1+$B$9)^B2 0.14 =ROUND(SUM(B8:68),0)