An investment under consideration has a payback of seven years and a cost of $875,000. assume the cash flows are conventional. if the required return is 11 percent, what is the worst-case npv?

Net present value (NPV) analysis is useful for determining the current value of a stream of cash flows that extend out into the future. To calculate net present value, we use the following formula:

NPV = X * [(1+r)^n - 1]/[r * (1+r)^n]

Where:

X = The amount received per period

n = The number of periods

r = The rate of return

npv = 875,000 * [(1+0.11)^7 - 1]/[0.11 * (1+0.11)^7]

= $ 7,954, 545

rational decision making is a multi-step process for making choices between alternatives. the process of rational decision making favors logic, objectivity, and analysis over subjectivity and insight. the word “rational” in this context does not mean sane or clear-headed as it does in the colloquial sense.

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