business finance

[rouzbehh]

2. Marian Plunket owns her own business and is considering an investment. If she undertakes the investment, it will pay $4000 at the end of each of the next three years. The opportunity requires an initial investment of $1000 plus an additional investment at the end of the second year of $5000. What is the NPV of this opportunity if the interest rate is 2% per year? Should Marian take it?

[redcrx]

what have you calculated it to be?

you cant just ask for answers to homework, you need to have a grasp on how to work it out.

[vivandorron]

I take the same view as redcrx.

However,If you are able to convert the dollars into pounds sterling, it is possible that a UK resident ABer may assist you.

Ron.

[rouzbehh]

cost=5000+1000=6000
NPV=4000(1+0.02)^1+4000(1+0.02)^2+4000(1+0.02
)^3-6000=5535.53

Marian should take it because NPV is positive

[squarebear]

There you go. Your teacher will be proud of you.

[rouzbehh]

i did this, so please assist me ,is it correct or not?

[dr b]

It's not correct because you are just adding the 1000 and 5000. The 5000 is a time 1 cash outflow, so it needs to be discounted back to time zero, just as you are discounting the 4000 cash inflows back to time zero,