Calculating the Net Present Value
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Linda Johnson is a freshmen at State University. She is considering starting a business in her dorm room that would sell computer supplies such as diskettes and ink cartridges to her fellow students. Gina estimates the business would generate $1,500 in net cash flow each of the next four years. To start the business she would need to acquire a computer at the cost of $2,000. It has an estimated salvage value of $500 at the end of four years. She also was must spend $4,000 for inventory items; all of this money will be recovered at the end of the year four. Gina cost of capital is 9%.
What is the net present value of this investment opportunity?
a. $ (786).
b. $1,694
c. $2,048
d. $8,048
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Solution Summary
Excel spreadsheet shows how to find the net present value of an investment opportunity for inventory items.
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