What is the Net Present Value (NPV) of the following cash flow at a discount rate of 8%?
| 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 |
| -$5,000 | $500 | $1,000 | $1,500 | $2,000 | $2,500 | $3,000 | $3,500 | $4,000 | 0 | $9,000 | $3,000 |
A corporation makes an investment of $20,000 that will provide the following cash flows after the corresponding amounts of time:
| Year 1 | $10,000 |
| Year 2 | $10,000 |
| Year 3 | $2,000 |
a Should the company make this investment?
b. What is the net present value at a 7 percent discount rate?
How are present values affected by interest rates?
A) Assuming positive interest rates, the present value will increase as the interest rate increases.
B) Assuming positive interest rates, the present value will decrease as the interest rate increases.
C) Assuming positive interest rates, the present value will decrease as the interest rate decreases.
D) Assuming positive interest rates, the present value will not change as the interest rate increases.
E) Assuming positive interest rates, the present value will not change as the interest rate decreases.
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