Question

Financial Math questions:

You have the opportunity to make an investment that costs $1.000,000. If you make this investment now, you will receive $250,000 one year from today, $200,000, $150,000 and $400,000 two and three years from today, respectively. The appropriate discount rate for this investment is 11 percent.
a. Should you make the investment?
b. What is the net present value (NPV) of this opportunity?
c. If the discount rate is 10 percent, should you invest? Compute the NPV to support your answer.

Answer 1

a. Yes, you should make the investment.

b. The NPV of the opportunity is $49,719.

c. Yes, you should invest. The NPV of the opportunity with a 10% discount rate is $55,000.

Explanation: