Personal Finance 1st Edition by Jack R. Kapoor

Exercise 24

Calculating the Present Value of a Consumer Purchase. What would be the net present value of a microwave oven that costs $159 and will save you $68 a year in time and food away from home? Assume an average return on your savings of 4 percent for five years. (Obj. 2)

Step 1 of 3

Calculate the present value of a Consumer Purchase:

To calculate the net present value, we have to calculate the present value of the savings using the interest rate and duration and then deduct the cost from it to obtain the net present value of the cash flows.

Given:

Cost	$159
Saving per year	$68
Interest rate	4%
Duration	5 years