You own a business and are considering an investment but there will be some environmental degradation. If you make the investment, it will pay 17165 annually at the end of each year of the next 5 years. The opportunity requires an initial investment of 35355. Although the local council agreed the planning permission, it is on condition that you pay for the environmental damage at the end, which requires an additional investment of 16844 at the end of year 5. The current fixed interest rate you have negotiated with the bank manager is 439 basis points per year.

Compute the NPV to decide whether you should accept this opportunity.

(Hint: In banking, interest rates are often described using basis points, where 1 percent is defined as 100 basis points)

Answer rating: 100% (QA)

To compute the Net Present Value NPV of the investment opportunity we need to discount the cash flow... View the full answer