Given the Following Expected Cash Flow Stream, Determine the NPV

question 30

Multiple Choice

Given the following expected cash flow stream, determine the NPV of the proposed investment in an income producing property and determine whether or not the investment should be pursued. Investment Horizon: 5 years; Expected Yearly Cash Flow in each of the next five years: $127,628. Expected Sale Price at end of 5 years: $1,595,350; Opportunity Cost of Investment 6%; Current Market Price of Property: $1,750,000

• A) NPV is -$20,246; Decision is to invest
• B) NPV is -$20,246; Decision is not to invest
• C) NPV is $249,967; Decision is to invest
• D) NPV is $249,967; Decision is to not invest

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Definitions:

Bank Deposits and Collections

This term refers to the processes involved in placing funds into a bank account and the subsequent management and collection of those funds.

Truth in Savings Act

A federal law designed to promote the disclosure of account terms and fees in the savings accounts and certificates of deposit of banks and other financial institutions.

Depositary Banks

Financial institutions that hold and manage securities for their clients, offering services such as safekeeping, collection of dividends, and exercise of rights.

Drawee Bank

A bank upon which a check or draft is drawn and is responsible for paying the amount to the individual or entity presenting it for payment.