An investment has a cost of $40,000 with net cash flows of $15,000 each year for 4 years. The company has a required rate of return of 8%. If the first four periods' discount factors, based on 8%, from a "present value of 1" table are 0.9259, 0.8573, 0.7938, and 0.7350, what is the net present value of the investment?

 An investment has a cost of $40,000 with net cash flows of $15,000 each year for 4 years. The company has a required rate of return of 8%. If the first four periods' discount factors, based on 8%, from a "present value of 1" table are 0.9259, 0.8573, 0.7938, and 0.7350, what is the net present value of the investment?

multiple choice
$60,000
$20,000
$9,680 Correct
$10,000

Explanation
Knowledge Check 01
 
Net present value = (Cash flow in year 1 of $15,000 × 0.9259) + (Cash flow in year 2 of $15,000 × 0.8573) + (Cash flow in year 3 of $15,000 × 0.7938) + (Cash flow in year 4 of $15,000 × 0.7350) − Amount invested of $40,000 = $9,680 (rounded).