Homework Answers
| Present value of cash inflow | $ 1,26,167.17 | ||||||||
| Less cost of project | $ 85,000.00 | ||||||||
| Net Present value (NPV) | $ 41,167.17 | ||||||||
| Investment should be accepted because it has positive NPV. | |||||||||
| Working: | |||||||||
| Present value of annuity of 1 for 5 years | = | (1-(1+i)^-n)/i | Where, | ||||||
| = | (1-(1+0.12)^-5)/0.12 | i | = | 12% | |||||
| = | 3.604776202 | n | = | 5 | |||||
| Present value of cash inflow | = | Annual cash inflow | * | Present value of annuity of 1 | |||||
| = | $ 35,000.00 | * | 3.604776 | ||||||
| = | $ 1,26,167.17 | ||||||||
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