Net Present Value

Assume your company has decided invest in new equipment to further increase profits. Compute the NPVs of the following investments independently:

1. An initial investment of $210,000 will return $67,000 per year for 8 years. Your company has assigned a discount rate of 10.50% to this project based on its cost of capital and the level of risk involved in the investment.

2. Your company can invest in a production 3D printer for $360,500 with a useful life of 4 years, and a salvage value of $3,050. The 3D printer makes $13,200 worth of product monthly. Your company has assigned a discount rate of 14.1% to this cost of capital and the risk involved.

3. There is a high risk, high reward investment opportunity avalible to your company. The potential return is $950,000 after 4 years for an initial investment of $375,000. Due to the high risk involved, your company has assiged a discount rate of 16.5%.

b. Compute the NPVs for the projects with equivalent useful lives (EUL).

Net Present Value Income Future Value Option Discount Rate Number of Periods Initial Investment Net Present Value b. Option NPV with EUL