Connors Music is considering investing $ 650,000 in private lesson studios that will have no residual value.

Question:

Connors Music is considering investing $ 650,000 in private lesson studios that will have no residual value. The studios are expected to result in annual net cash inflows of $ 90,000 per year for the next ten years. Assuming that Connors Music uses an 12% hurdle rate, what is (NPV) of the studio investment? Is this a favorable investment?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...