Assume an investment is priced at $5,000 and has the follow
ing income stream:
Year Cash Flow
1 $1,000
2 −2,000
3 3,000
4 3,000
Would an investor with a required rate of return of 15 per
cent be wise to invest at a price of $5,000?
a. No, because the investment has a net present value of
−$1,139.15.
b. No, because the investment has a net present value of
−$1,954.91.
c. Yes, because the investment has a net present value of
$1,069.66.
d. Yes, because the investment has a net present value of
$1,954.91.
e. An investor would be indifferent between purchasing and
not purchasing the above investment at the stated price.