John Owns a Golf Course and Wants to Add Some

question 112

Essay

John owns a golf course and wants to add some computers to the lounge. The computers would cost $14,000 and would have a 3 year life and no residual value. John expects the computers to generate $5,000 annual cash inflows for 3 years. The discount rate is 8%. What is the net present value of the investment?

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Definitions:

Closed-end Funds

Type of investment fund with a fixed number of shares that trade on a stock exchange, unlike open-end funds that continuously issue new shares or redeem existing shares.

Behavioral Finance

Models of financial markets that emphasize implications of psychological factors affecting investor behavior.

Conventional Financial Theory

A framework that includes principles and models for understanding financial markets, portfolio management, and investment decision-making.

Utility-maximizing Investors

Investors who strive to achieve the highest possible level of satisfaction or utility from their investment choices, based on their preferences and risk tolerance.