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    Net present value of the investment: Marcia and a Law Firm

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    9. Marcia is planning for her golden years. She will retire in 20 years, at which time she plans to begin withdrawing $60,000 annually. She is expected to live for 20 years following her retirement. Her financial advisor thinks she can earn 9% annually, both before and after retirement. How much does she need to invest each year while working to prepare her for her financial needs after retirement?

    10. The law firm of Dewey, Cheatham & Howe is considering investing in a new computer system. The initial investment will be $35,000. The computer system is expected to generate cash flow over the next six years as follows:

    Year 1: $18,880
    Year 2: $20,308
    Year 3: $18,785
    Year 4: $17,868
    Year 5: $17,868
    Year 6: $17,190

    Calculate the net present value of the investment, assuming the law firm's weighted average cost of capital is 12%. Should the firm buy the system?

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    Solution Summary

    The solution calculates the net present value of the investment in this case.