An investment costs Rs. 10,000 today and returns Rs. 6,000 at the end of each of the next two years. At a discount rate of 10%, what is its net present value?
Correct answer: A. Rs. 413.22
- A. Rs. 413.22
- B. Rs. 500.00
- C. Rs. 909.09
- D. Rs. 1,000.00
Explanation
The present value of the returns is 6,000/1.10 + 6,000/(1.10)^2 = Rs. 10,413.22. Subtracting the initial cost gives an NPV of Rs. 413.22. The undiscounted surplus of Rs. 2,000 is not the NPV.
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