Share
Explore BrainMass

Calculating Net Present and future Values

1.Calculate the NPV for each of the following investments. The opportunity cost of capital is 20% for all four investments.

Investment Initial Cash Expenditures Year 1 Cash Flow

A ($10,000) $18,000
B ($ 5.000) $ 9,000
C ($ 5,000) $ 5,700
D ($ 2,000) $ 4,000

A. What is the NPV of each investment?
B. Which investment is the most valuable?

2.A factory costs $800,000. You believe that it will produce an inflow after operating costs of $170,000 a year for 10 years. If the opportunity cost of capital is 14%, what is the NPV of the factory? What will the factory be worth at the end of five years?

Solution Preview

Solutions:

1.Calculate the NPV for each of the following investments. The opportunity cost of capital is 20% for all four investments.

Investment Initial Cash Expenditures Year 1 Cash Flow

A ($10,000) $18,000
B ($ 5.000) $ 9,000
C ($ 5,000) $ 5,700
D ($ 2,000) $ 4,000

A. What is the NPV of each investment?

NPV of Investment A= ...

Solution Summary

Solution describes the steps for determining net present and future values.

$2.19