You have been offered a unique investment opportunity. If you invest $10,000 today, you will receive $500 one year from now, $1,500 two years from now, and $10,000 ten years from now.

a) What is the NPV of the opportunity if the interest rate is 12% per year? Should you take the opportunity?
b) What is the NPV of the opportunity if the interest rate is 8% per year? Should you take it now?

Instructions are listed below.

Explanation:

Giving the following information:

Io= -10,000

Cf1= 500

Cf2= 1,500

Cf3= 10,000

Based on this information and using the following formula, we need to calculate the net present value:

NPV= -Io + ∑[Cf/(1+i)^n]

Cf= cash flow

A) i= 0.12

Cf1= 500/1.12= 446.43

Cf2= 1,500/1.12^2= 1,195.80

Cf3= 10,000/1.12^3= 7,117.80

Total= 8,760

NPV= -10,000 + 8,760= -1,240

Under these circumstances, the investment shouldn't be done.

B) i= 0.08

Cf1= 500/1.08= 462.96

Cf2= 1,500/1.08^2= 1,286

Cf3= 10,000/1.08^3= 7,983.32

Total= 9,732.28

NPV= -10,000 + 9,732.28= 267.72

Under these circumstances, the investment shouldn't be done.

1   all nations face the problem of scarcity because there are limited resources and unlimited wants. nations do not have enough factors of production to produce everything that their population wants. entrepreneurial resources initiate businesses to make new goods and services; labor resources produce goods and services.

2 there are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources. natural resources are raw materials from nature that are used to produce goods. trees, water, and grains are natural resources. some natural resources, such as wheat and cattle, are renewable

3 wants

things that you do not need to have in order to survive, but would like to have

needs

things that you must have in order to survive

goods

physical products

services

tasks that a business perform for customers

resources

items that people can use to make or obtain what they need or want

determine

to settle or decide by choice of alternatives or possiblities

4 i really dont know

answer; dogs;