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Homework answers / question archive / An investment under consideration has a payback of six years and a cost of $866,000

An investment under consideration has a payback of six years and a cost of $866,000

Finance

An investment under consideration has a payback of six years and a cost of $866,000. Assume the cash flows are conventional.

  

If the required return is 12 percent, what is the worst-case NPV? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places, e.g., 32.16.)

  

  Worst-case NPV$  :

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Computation of  Worst-case NPV:

 Worst Case NPV = -$866,000 + $866,000/1.12^6

= -$866,000+ $866,000/1.9738  

= -$866,000 + $438,742.55

Worst Case NPV = -$427,257.45

 

Note: The worst case is that the entire cost of the $866,000 is paid back after 6 years and there are no further cash flows after that.

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