Year | Cash Flow | NCFAT

—-|———–|——-

1 | 10,000 | 8,000

2 | 12,000 | 9,600

3 | 15,000 | 11,700

4 | 17,000 | 13,400

5 | 20,500 | 16,200

Calculate the NPV by subtracting your initial investment from all future discounted cash flow. If you assume a discount of 7% then your NPV will be approximately $631. It is clear that, even though the project has a positive overall return, it could still be unacceptable in some circumstances. If for instance our required return rate was greater than 7%, we’d need to refuse this proposal because its current returns would not cover these costs.

In order to make the best decisions, it’s important to consider various factors when assessing any investment. These include expected returns as well as risk. While there may be money to make, our calculations indicate that the investment might not meet expectations. Therefore further analysis is needed before investing any money in order to maximize potential returns while minimizing losses.

This explanation is both accurate and helpful. This article provides a clear overview of time value and compounding. These are important concepts to consider when calculating the potential return on an initial investment. It is helpful to see how these concepts work in conjunction for this specific scenario. It could still be improved by including more details about how the calculations were made to determine the final balance 18 years later, for example, what formulas were used and the impact of inflation on the results.