You have an opportunity to invest $49,200 now in return for $60,900 in one year. If your cost of capital is 7.6%, what is the NPV of this investment? The NPV will be $ (Round to the nearest cent.) …..
You have an opportunity to invest $49,200 now in return for $60,900 in one year. If your cost of capital is 7.6%, what is the NPV of this investment? The NPV will be $ (Round to the nearest cent.) …..
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
![**Investment Opportunity Analysis**
You have an opportunity to invest $49,200 now in return for $60,900 in one year. If your cost of capital is 7.6%, what is the NPV (Net Present Value) of this investment?
---
The NPV will be $____. (Round to the nearest cent.)
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### Explanation:
To determine the NPV of this investment, you need to discount the future cash flows back to their present value and subtract the initial investment. The formula for NPV is:
\[ \text{NPV} = \frac{C_t}{(1 + r)^t} - C_0 \]
Where:
- \( C_t \) = Cash inflow at time t ($60,900)
- \( C_0 \) = Initial investment ($49,200)
- r = Discount rate (7.6% or 0.076)
- t = Time period (1 year)
By inputting the given values into the formula, you can solve for the NPV.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8e3b61c9-20cc-45b0-8820-712e68e1a019%2F47473282-daa7-4354-ac6f-5fc60865fc53%2F4295vib_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Investment Opportunity Analysis**
You have an opportunity to invest $49,200 now in return for $60,900 in one year. If your cost of capital is 7.6%, what is the NPV (Net Present Value) of this investment?
---
The NPV will be $____. (Round to the nearest cent.)
---
### Explanation:
To determine the NPV of this investment, you need to discount the future cash flows back to their present value and subtract the initial investment. The formula for NPV is:
\[ \text{NPV} = \frac{C_t}{(1 + r)^t} - C_0 \]
Where:
- \( C_t \) = Cash inflow at time t ($60,900)
- \( C_0 \) = Initial investment ($49,200)
- r = Discount rate (7.6% or 0.076)
- t = Time period (1 year)
By inputting the given values into the formula, you can solve for the NPV.
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