Answer:
NPV= $22,511.15
Explanation:
First, we need to calculate the present value of the cash flows ∑[Cf/(1+i)^n]:
FV= {A*[(1+i)^n-1]}/i
A= annual cash flow
FV= {50,000*[(1.12^10) - 1]} / 0.12
FV= $877,436.75
PV= FV/(1+i)^n
PV= 877,436.75/1.12^10
PV= $282,511.15
Now, the net present value, using the following formula:
NPV= -Io + ∑[Cf/(1+i)^n]
NPV= -260,000 + 282,511.15
NPV= $22,511.15
The net present value should be $22511.
Present value of annuity = Annuity[1-(1+interest rate)^-time period] ÷rate
= 50,000[1-(1.12)^-10] ÷ 0.12
= 50,000 × 5.65022303
= $282511.15
Now
NPV = Present value of inflows - Present value of outflows
= 282511.15 - 260,000
= $22511
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