A Customer of Gemini corporation wants to purchase $25,000 of goods on credit. Gemini estimates a 96% probability of a complete payment in 2 months and a 4% probability of a complete default. The cost of the investment is 20,500. At the time of sale the required return is 12% . 

Calculate NPV.

Answer rating: 100% (QA)

To calculate the Net Present Value NPV of this investment we need to discount the expected cash flows by the required rate of return and subtract the initial investment cost Given Initial investment cost 20500 Expected probability of complete payment 96 Probability of default 4 Cash flow in case of complete payment 25000 Required rate of return 12 First lets calculate the expected cash flow ... View the full answer