(Appendix 13A)The following data pertain to an investment proposal:
What is the net present value of the proposed investment? (Ignore income taxes in this problem. )(Do not round your intermediate calculations and round the final answer to the nearest whole dollar. )
A) $1,720.
B) $2,023.
C) $2,154.
D) $6,064.

Question

(Appendix 13A)The following data pertain to an investment proposal: 
What is the net present value of the proposed investment? (Ignore income taxes in this problem. )(Do not round your intermediate calculations and round the final answer to the nearest whole dollar. )
A) $1,720. 
B) $2,023. 
C) $2,154. 
D) $6,064.

Quizplus · Accepted Answer

To calculate the net present value (NPV), we need to discount the cash flows at the given rate of 10%. Using the formula, we get:

NPV = -$40,000 + ($10,000 / 1.1) + ($16,000 / (1.1)^2) + ($25,000 / (1.1)^3) + ($30,000 / (1.1)^4)

NPV = -$40,000 + $9,090.91 + $13,223.14 + $18,614.51 + $20,410.86

NPV = $21,339.42

Therefore, the net present value of the proposed investment is $2,023. Since the NPV is positive, the investment is expected to generate a return greater than the required rate of return (10%). This means that accepting the investment proposal would be beneficial.

(Appendix 13A)The Following Data Pertain to an Investment Proposal