By 1234 - 8/22/2014 3:40:29 PM
I'm confused about the formula for the NPV of the older equipment in the Gargle Blaster example in the textbook:
"NPV= - (investment) + PV(price - manufacturing cost)
= -2.50 +(5.75 - 5.50) / 0.20"
I know that the opportunity cost of capital is 20% but I don't understand why the second term on the right-hand side of the equation is divided by "0.20".
[NEAS: Formula for present value of an infinite series of equal cash flows. The present value of 1 each period forever is 1/(discount rate).]
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