You have the opportunity to make an investment of $900,000. If you make this investment, you make $12,000, $250,000 and $800,000 one, two and three years from today, respectively. The discount rate is 12%
a) Should you make this investment?
b) What is the NPV (net present value) of this opportunity?
c) If the discount rate is 11%, should you invest? what is the NPV?
a. The cost of investment is $900,000.
PV of cash inflows = $120,000 / 1.1(2) + $250,000 / 1.12(2) + $800,000 / 1.12(3) = ...
This posting looks at the opportunity to invest money, and examines if you should make the investment. It also examines different discount rates.