Answer:
Instructions are listed below.
Explanation:
Giving the following information:
Io= -10,000
Cf1= 500
Cf2= 1,500
Cf3= 10,000
Based on this information and using the following formula, we need to calculate the net present value:
NPV= -Io + ∑[Cf/(1+i)^n]
Cf= cash flow
A) i= 0.12
Cf1= 500/1.12= 446.43
Cf2= 1,500/1.12^2= 1,195.80
Cf3= 10,000/1.12^3= 7,117.80
Total= 8,760
NPV= -10,000 + 8,760= -1,240
Under these circumstances, the investment shouldn't be done.
B) i= 0.08
Cf1= 500/1.08= 462.96
Cf2= 1,500/1.08^2= 1,286
Cf3= 10,000/1.08^3= 7,983.32
Total= 9,732.28
NPV= -10,000 + 9,732.28= 267.72
Under these circumstances, the investment shouldn't be done.
