A firm expects $68,000 total return in a year time from its investment of $40,000 in acceptable projects.

Question

A firm expects $68,000 total return in a year time from its investment of $40,000 in acceptable projects. While average market rate of return is 30 per cent, the firm is earning 70% return from its investments. What is the NPV of this investment?

Answer 1

NPV = $12,307.69

Cash Flow 1 = -40,000

Cash Flow 2 = 52,304.69 (68,000 /1.3)

-40,000 + 52,304.69 = 12,307.69