Question
What is the future value of $10 invested at 10% at the end of 1 year 2. What is the future value of $10 invested
What is the future value of $10 invested at 10% at the end of 1 year 2. What is the future value of $10 invested at 10% at the end of 5 year? 3. Net Present Value (NPV) Scenario: -- NPV is the Present value of incoming money minus initial investment. For a project to be profitable, NPV has to be positive. Let us apply this concept to the following situation: You own a Pizza Restaurant and you need to expand your cooking capacity to meet demand. You need a new oven, which will cost $100,000. Your current oven costs $15,000 a year to operate and you expect to save $5,000 a year operating this new oven. The anticipated life of the oven is 10 years and it will be worth $0 at the end of that period. Your current tax rate is 30%. You expect net profits to increase as follows: Y1 $7,500, Y2 to Y7 $10,000, Y8 to Y10 $12,000. What is the NPV of this project? Should you buy the oven?
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