Question:
I need to show all work.You are considering investing in a real estate project. Your one ownership unit would cost $30,000. The project is expected to generate annual cash flow for you of: $4,500 in year 1, $5,000 in years 2-5, $8,000 in year 6 and $19,000 in year 7. With a discount rate of 11.0%, what is the net present value (NPV) of this investment? Should you invest in this deal? Why or why not?
Answer
NPV = sum of present values of cash flows present value of each cash flow = cash flow / (1 + discount rate)n where n = number of years after which the cash flow occurs NPV
