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Unformatted text preview: $1,300 per year for 15 years. ³he cosT of purchasing This invesTmenT is $9,200. You have an alTernatve invesTmenT opporTuniTy, of equal risk, ThaT will yield 9% per year. WhaT is The NPV ThaT makes you indi²erenT beTween The Two optons? Answer: We have to compare the present value with cost of the investment for its suitability. The discount rate will be the return expected from another project that is 9%. Annuity factor for 15 years at 9% = [1  (1+r)n ] / r = [ 1  (1.09)15 ] / 0.09 = 8.061 So, Present value of $1,300 to be received each year for 15 years = Cash Flow per year x Annuity factor = $1,300 x 8.061 = $10,479 So, NPV = $10,479  $9,200 = $1,279 So, the Investment should be made as it is generating more returns than the present investment at 9%....
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 Spring '15
 JUSTIN
 Accounting, Depreciation, Net Present Value, Operating cash flow, Generally Accepted Accounting Principles, Incremental cash flow

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