2. A firm invests $35,000 in a piece of equipmet which will bring in savings of...
2. A firm invests $35,000 in a piece of equipmet which will bring in savings of $10,000 per year for 6 years. At the required rate of return of 12% what is the net present value of this project?
Homework Answers
Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=$10,000[1-(1.12)^-6]/0.12
=$10,000*4.111407324
=$41,114.07
NPV=Present value of inflows-Present value of outflows
=$41,114.07-$35000
=$6,114.07(Approx).
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