Answer:
Net Present Value = $ 34,310.45
Explanation:
The Net Present Value (NPV) represents the difference between the present value of cash inflows and outflows. A positive NPV indicates a favorable investment decision, while a negative value suggests otherwise.
NPV of a project
NPV = Present Value of Cash inflows - Present Value of Cash outflow
The cash inflow is characterized as an annuity.
Present Value of annuity= A × 1 - (1+r)^(-n)/r
A refers to Annual cash flow, - 65,000, r is the discount rate at 12%, and the term is 5 years.
Calculation for Present Value of cash inflow equals 65,000 × (1 - (1.12)^(-5)/0.12) = 234,310.45.
The initial investment is 200,000.
Thus, the Net Present Value calculation is - 234,310.45 -200,000 = 34,310.45
Net Present Value = $ 34,310.45