There are two ways to calculate the net present value, which is the difference between present values of cash inflows and cash outflows. NPV = Cash flow/(1+i)t – initial investment NPV = Today value of future cash inflow – Today net investment The NPV can help make an option to invest and buy an equipment, or to invest in a different project. You have to calculate the net present value and choose between Buying an equipment that costs $180,000. This equipment has an expected life of 15 years, and it will be able to generate a monthly cash flow of $1,500 throughout its lifetime. Alternative investment that pays 5% per year.

1. What is the NPV for this case? (Round it to the nearest integer)

2. What would the best choice be to this company?
A. Use the money towards the alternative investment
B. Use the money to acquire the equipment

Answer rating: 100% (QA)

To calculate the Net Present Value NPV of both options we can use the first formula you provided NPV ... View the full answer