FIN 300 Chapter Notes -Net Present Value, Savings Account, Cash Flow

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6 Jan 2023

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Net present value (npv) the difference between the present value of its benefits and the present value of its costs. Suppose your firm is offered the following investment opportunity: in exchange for today, you will receive. in one year. if the interest rate is 8% per year: this pv is the amount you would need to put in the bank today to generate in one year (. 26 x. If you don"t have the , suppose you borrow . 26 from the bank at the 8% interest rate and then take the project. The npv expresses the value of an investment decision as an amount of cash received today. If the npv is positive, the decision increases the value of the firm and is a good decision regardless of your current cash needs or preferences regarding when to spend the money. Example: the npv is equivalent to cash today.

Related Questions

3. Consider the following investment opportunity. If you invest $10.000 today, you will receive $500 in a year, $1.500 in two years, and $10.000 in 10 years.

a. What is the Net Present Value (NPV) of this investment if the opportunity cost of capital is 6% anual? Will you accept or reject the investment opportunity?

b. What is the NPV of the investment if the opportunity cost of capital is now 2% anual? Will you accept or reject the investment?

Show your work.

crimsonchimpanzee716

Time Value of Money Problems

Calculate the present value of the following investment: (a) Future Value: $123,000, (b) Number of Periods: 10, and (c) Interest Rate: 6%.

Calculate the future value of the following investment: (a) Present Value: $12,000, (b) Number of Periods: 13, and (c) Interest Rate: 4%.

Calculate the number of periods for the following investment: (a) Present Value: $30,000, (b) Future Value: $98,328, and (c) Interest Rate: 6%.

Calculate the Interest Rate for the following investment: (a) Present Value: $12,000, (b) Future Value: $25,000, and (c) Number of Periods: 14.

pucetiger860

FastTrackâ Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $186,000 per year. Once inâ production, the bike is expected to make $260,400

per year for 10 years. Assume the cost of capital is 10%.

âNote: Assume that all cash flows occur at the end of the appropriate year and that the inflows do not start until year 7.

a. Calculate the NPV of this investmentâ opportunity, assuming all cash flows occur at the end of each year. Should the company make theâ investment?

The present value of the costs is $. (Round to the nearestâ dollar.)

The present value of the benefits is $. (Round to the nearestâ dollar.)

The net present value is $. (Round to the nearestâ dollar.)

You should

accept the investment because the NPV is positive

b. By how much must the cost of capital estimate deviate to change theâ decision? (Hint: Use Excel to calculate theâ IRR.)

To change theâ decision, the deviation would need to be . (Round to two decimalâ places.)

c. What is the NPV of the investment if the cost of capital is 14%â?

The present value of the costs is $. (Round to the nearestâ dollar.)

The present value of the benefits is $ (Round to the nearestâ dollar.)

The NPV will be $. (Round to the nearestâ dollar.)

amaranthmuskrat812

FIN 300 Chapter Notes -Net Present Value, Savings Account, Cash Flow

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