Question

Park Co. is considering an investment that requires immediate payment of $27,215 and provides expected cash inflows of $8,400 annually for four years. Assume Park Co. requires a 8% return on its investments. 1-a. What is the net present value of this investment

Answer 1

the net present value is $606.64

Step-by-step explanation:

The computation of the net present value is shown below:

But before that the present value of annual cash inflows is to be determined i.e.

Present value = annual cash flows × PVIFA(8%,4years)

= $8,400 × 3.3121

= $27,821.64

Now

Net present value = Present value of cash flows - initial investment

= $27,821.64 - $27,215

= $606.64

Hence, the net present value is $606.64