To determine the Net Present Value (NPV) of the investment, we can follow a straightforward calculation. When the discount rate is zero, the NPV is simply the sum of the cash flows minus the initial investment cost.
The cash flows over the four years are:
- Year 1: 265,381
- Year 2: 304,172
- Year 3: 225,153
- Year 4: 208,614
Now, we first sum up all the cash flows:
265,381 + 304,172 + 225,153 + 208,614 = 1,003,320
Next, we subtract the initial investment cost from this total:
1,003,320 – 745,382 = 257,938
So, the Net Present Value (NPV) of the investment when the discount rate is zero is 257,938.
This means that the investment is expected to generate a profit of 257,938 over its four-year life, making it a financially viable option.