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Calculate the NPV of investment in the given cases

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Assume you pay an annual rent of $36,000 over a period of 44 years - paid at the beginning of each year.
a) If i=0.04, calculate the NPV of this payment stream.
b) Assume you want to persuade your landlord to pay at the end of each year instead. He would be willing to change the payment scheme -- but only if you pay him an additional $25,000 in cash premium at the beginning of the first year. Should you do that? Calculate the resulting difference compared to the beginning-of-the year scheme under (a).

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Solution depicts the steps to estimate the NPV of proposal in given cases.

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a)
i=0.04
Number of periods=n=44
Annual Rent=R=$36000
NPV=-R*(P/A,0.04,44)*(1+i)
(Its a beginning of period payment. Its shown as negative as it is a ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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