Question

Based on the following data the investment has a positive net present value.

time	cash flows from investment in a leased property	discount rate
0	-1,000,000	7%
1	$240,000
2	$240,000
3	$240,000
4	$240,000
5	$240,000
6	$240,000
7	$240,000
8	$240,000
9	$240,000
10	$240,000

True or False?

Answer 1

The correct answer is True.

Note:

Net Present Value = Present Value of Cash Inflows - Present Value of Cash Outflows

= [ $ 240,000 * 1/(1.07)^1 +$ 240,000 * 1/(1.07)^2+$ 240,000 * 1/(1.07)^3+$ 240,000 * 1/(1.07)^4+$ 240,000 * 1/(1.07)^5+$ 240,000 * 1/(1.07)^6+$ 240,000 * 1/(1.07)^7+$ 240,000 * 1/(1.07)^8+$ 240,000 * 1/(1.07)^9+$ 240,000 * 1/(1.07)^10]- $ 1,000,000

= $ 685,659.57

The Net Present value is $ 685,659.57 which is positive.