Net Present Value of this investment $11067.96.
Net Present value is a technique which helps in determining whether the long-term project will be profitable or not. It is calculated by considering the present value of cash inflows minus present value of cash outflow.
Thus, NPV = Present value of cash inflow - Present value of cash outflow
Present value of cash outflow is taken at 0 year as outflow happens in the current year.
Present value of cash inflow = Cash inflow ÷ (1 + i)ⁿ
where, i = interest rate
and n is the no of years
Here, cash inflow is $109250 and cash outflow is $95000
Interest rate is 3%
Thus, NPV = ($109250 ÷(1+3%)) - $95000
= (109250 ÷ (1+0.03)) - 95000
= 106067.96 - 95000
= 11067.96
Thus, NPV is equal to $11067.96. If inflow is more than outflow i.e., npv is positive, it means that the project should be accepted. Thus, this project should be accepted.
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