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Calculating the Net Present Value

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

Solution Preview

Please view the attached Excel file, which provides an analysis of this scenario, to ...

Solution Summary

Excel spreadsheet shows how to find the net present value of an investment opportunity for inventory items.