Final answer:
The NPV of the investment when the discount rate is zero is $291,430, which is calculated by summing the cash flows over four years and subtracting the initial investment cost.
Step-by-step explanation:
The student is asking about the calculation of Net Present Value (NPV), which is a business and finance concept used to determine the value of a series of cash flows over a period when discounted at a specific rate. In this instance, the discount rate is given as zero, which simplifies the calculation because the present value of future cash flows remains as stated.
To calculate the NPV when the discount rate is zero, you simply sum the projected cash flows and subtract the initial investment cost. Therefore:
- Year 1 cash flow: $221,850
- Year 2 cash flow: $238,450
- Year 3 cash flow: $205,110
- Year 4 cash flow: $153,820
NPV = (Sum of cash flows) - Initial investment
NPV = ($221,850 + $238,450 + $205,110 + $153,820) - $527,800
NPV = $819,230 - $527,800
NPV = $291,430
In this scenario, the NPV is $291,430, which represents the net value added by the investment over its four-year life.