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Calculating NPV, Rate of Return and cash discount

1.An investment costs $10,000 and offers and annual cash flow of $1,770 for ten years. According to the net present value method of capital budgeting, should the firm make this investment if its cost of capital is 10%

2.If and asset is bought for $10,000 and sold for $20,000 after ten years. What was the annual rate of return on this investment

3.Determine the annual financing cost of foregoing a cash discount under credit terms of 2/30 net 90.

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Solutions:

1.An investment costs $10,000 and offers and annual cash flow of $1,770 for ten years. According to the net present value method of capital budgeting, should the firm make this investment if its cost of capital is 10%

Present Value = Future Value/(1+r/100)^n
n = period
r = cost of capital per period

Year End Cash Flow Present value @10%
0 -10000.00 ...

Solution Summary

The solution describes the steps in determining net present value, rate of return and cost of cash discount under credit terms.

$2.19