For a perpetuity, the discount factor is 1/r. Here 1/0.09 = 11.1111
PV of income = 1.111 x 5670 = 63,000
NPV = 63,000 - 50,000 = 13,000
O
Olawale·
Can you please explain how they arrived at the answer given
A company is considering investing $50,000 in a project which will yield $5,670 per
annum in perpetuity. The company’s cost of capital is 9% per annum.
Required:
Calculate the net present value of the project.
PV of income = 1.111 x 5670 = 63,000
NPV = 63,000 - 50,000 = 13,000
A company is considering investing $50,000 in a project which will yield $5,670 per
annum in perpetuity. The company’s cost of capital is 9% per annum.
Required:
Calculate the net present value of the project.
answer is $13,000