The following information applies to the questions displayed below Park Co. is c

Question

The following information applies to the questions displayed below Park Co. is considering an investment that requires immediate payment of $20,957 and provides expected cash inflows of $6,900 annually for four years. Park Co. requires a 9% return on its investments. 1-a. What is the net present value of this investment? (PV of $1, FV of $1, PVA tables provided. Round your present value factor to 4 decimals.) $1, and FVA of $1) (Use appropriate factor(s) from the Cash Flow Select Chart Amount xPV Factor Present Value Annual cash flow Net present value 1-b. Based on NPV alone, should Park Co. invest? Yes No

Explanation / Answer

Answer to Question 1-a

Net Present Value = Present Value of Cash Inflow (PVCI) - Present Value of Cash Outflow (PVCO)

In the question above PVCO = $20,957

PVCI = $ 6,900 x 3.2397

         = $ 22,354.07

Net Present Value = $ 22,354.07 - $ 20,957

       = $ 1,397.07

Answer to Question 1-b

Yes, based on NPV Park Co. should invest.

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