Suppose that the initial cost of a two-year investment is $1000, the net cash inflow of the investment for the following two years is $700 per year, what is the Net Present Value of this investment (discount rate is 10%): O $140 $272

Economics Dec 03, 2020

Suppose that the initial cost of a two-year investment is $1000, the net cash inflow of the investment for the following two years is $700 per year, what is the Net Present Value of this investment (discount rate is 10%): O $140 $272.7 $214.9 O $617

Expert Solution

Initial cost of a two-year investment = $1000

Net cash inflow is $700 each for the next 2 years.

Discount rate = 10% or , 0.1

Therefore , Net Present Value (NPV) = [700/(1+0.1)] + [700/(1+0.1)²] - 1000 = 214.87 which can be approximated as 214.9.
Thus , option c is the correct answer.

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