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    Net present value

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    An aircraft company has signed a contract to sell a plane for $20 million. The firm buying the
    plane will pay for it in 5 annual payments (at year end) of $4 million. If the firm's cost of capital is 6%, what is the net present value of this payment?

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    Solution Preview

    The payments are an annuity. The Present Value (PV) of an annuity is calculated as
    PV = PMT [(1 ...

    Solution Summary

    The solution explains how to calculate the net present value of the payment.