## Net present value

Net present value is used to convert multiple future values into a singular combined present value. This can be used to assess the feasibility and profitability of a venture.

## Answer and Explanation:

The investment provides a positive return, but it is very low. The net present value of the return is 3.61% over the whole 15 year period. The IRR is 10% but this competes with the 9% interest rate creating small margins for the investor. Overall, this is not a good investment based on the risk associated with a single property and the low returns. The $8,000 could outperform in a low-risk, low-yield security. The following table shows calculations.  Year Annual Income 0 ($8,000) 1 $1,300 2$1,250 3 $1,200 4$1,150 5 $1,100 6$1,050 7 $1,000 8$950 9 $900 10$850 11 $800 12$750 13 $700 14$650 15 $600 Description Value Calculation Interest Rate 0.09 Net Present Value$288.55 NPV(0.09,Year 1 Income:Year 15 income) - $8,000 Percentage return in present value 3.61%$288.55 / \$8000 IRR 10%

#### Learn more about this topic: Discounted Cash Flow, Net Present Value & Time Value of Money

from Accounting 102: Intro to Managerial Accounting

Chapter 8 / Lesson 4
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