A company is considering an investment that costs $55,000.
Annual cash savings of $10,000, with a PV at 12% (companys discount rate) of $56,502, are expected for the next 10 yrs.
Should the investment be made or not???
does the investment offer a 12% rate of return or less than 12%??
2007-01-07 14:54:23 · 3 answers · asked by carlin 1 in Business & Finance ➔ Investing
A 12% return on $55,000 in 10 years, compounded annually, is $170,821. PV stands for Present Value and should not be quoted as an annual rate. Furthermore, saving $10,000 annually on such a small investment sounds suspicious. According to the numbers you provide, I would steer clear of this "investment."
Hawk
2007-01-07 17:28:14 · answer #1 · answered by equityhawk 2 · 0⤊ 0⤋
Your investment meets one criteria out of the three. PV is greater than the investment. Actually NPV should be positive.
The other criterion are IRR should be greater than cost of capital or ROI, the pay back period should be less than the investment horizon.
2007-01-07 20:29:37 · answer #2 · answered by Mathew C 5 · 0⤊ 0⤋
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2016-09-03 17:53:00 · answer #3 · answered by adamek 4 · 0⤊ 0⤋