This question is based on the following cash flows
| C0=$10,000 | I1=$2,000 | I2=$2,000 | I3=$3,000 | I4=$3,000 | I5=$2,500 | L=$1,000 | |
| 0 | 1 | 2 | 3 | 4 | 5 | ||
C: Cost, I: Income, L: Salvage
The escalation rate is 10% per year in this example.
Calculate the NPV of this investment assuming an escalated dollar minimum rate of return of 8%
Present value of investment = $10,000
Present value of income = 2,000 / (1+0.08) + 2,000 / (1+0.08)2 + 3,000 / (1+0.08)3 + 3,000 / (1+0.08)4 + 2,500 / (1+0.08)5
= $9,854.57
Present value of Salvage = 1,000 / (1+0.1)5
= $620.92
Net present value of investment = 9,854.57 + 620.92 - 10,000
= $475,49
This question is based on the following cash flows C0=$10,000 I1=$2,000 I2=$2,000 I3=$3,000 I4=$3,000 I5=$2,500 L=$1,000...