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Part 1

Your storage firm has been offered 

​$99 comma 90099,900 

in one year to store some goods for one year. Assume your costs are 

$ 95 comma 200$95,200​, 

payable​ immediately, and the cost of capital is 

8.3 %8.3%. 

Should you take the​ contract?

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Part 1

The NPV will be 

​$enter your response here. 

 ​(Round to the nearest​ cent.)

To determine whether you should take the contract, we need to calculate the **Net Present Value (NPV)**. The formula for NPV is:

\[
\text{NPV} = \left(\frac{\text{Future Value}}{(1 + r)^t}\right) - \text{Initial Cost}
\]

Where:
- **Future Value (FV)** is $99,900 (the payment you'll receive in one year).
- **Initial Cost (IC)** is $95,200 (your costs, payable immediately).
- **r** is the cost of capital, or discount rate, which is 8.3% (0.083).
- **t** is the time in years, which is 1.

### Step-by-step Calculation:

1. **Discount the future payment:**

\[
\frac{99,900}{(1 + 0.083)^1} = \frac{99,900}{1.083} = 92,238.04
\]

2. **Subtract the initial cost:**

\[
\text{NPV} = 92,238.04 - 95,200 = -2,961.96
\]

### Conclusion:

The NPV is $-2,961.96$. Since the NPV is negative, you should **not take the contract** because it results in a financial loss.

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Would you like further details on the calculation? Here are some related questions you could explore:

1. How does a positive NPV indicate a good investment?
2. What happens if the cost of capital changes?
3. Can you calculate the break-even point for NPV?
4. How does the NPV formula adjust for longer time periods?
5. What are alternative methods for evaluating investment projects?

**Tip:** Always double-check your discount rate to ensure you're using the correct decimal representation.

Your storage firm has been offered $99,900 in one year to store some goods for one year. Assume your costs are $95,200, payable immediately, and the cost of capital is 8.3%. Should you take the contract? The NPV will be $enter your response here. (Round to the nearest cent.)

Learn how to calculate the Net Present Value (NPV) for a storage contract, where the future payment is $99,900, the immediate cost is $95,200, and the discount rate is 8.3%. Follow a step-by-step guide to determine if the contract should be accepted, using financial analysis and the NPV formula. Ideal for business and finance students.

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