A. Return (continued)
5. Measuring Return
- a. Net Present Value
- Example: Suppose we are considering investing in an asset that yields $1000 in year one, $1100 in year two, $1500 in year three and $3200 in year four.
- If your required rate of return is 12%, and the asset costs $5000, determine the net present value.
NPV = $1000/(1.12)1 + $1100/(1.12)2 + $1500/(1.12)3 + $3200/(1.12)4 - $5000
NPV = -$128.90