APFIVE A farmer invests in sustainable practices with an upfront cost of $5000 and anticipates annual savings of $600 for 15 years. Using a discount rate of 5% per year, all the following statements about the discounted cash flow analysis are true EXCEPT:
A net present value analysis can indicate whether the sustainable practices investment is financially viable.
Discounting accounts for the time value of money by reducing the worth of future savings relative to current dollars.
The present value of the annual savings can be calculated using the formula $$PV = 600*\frac{1-(1.05)^{-15}}{0.05}$$.
The total discounted savings will be greater than the nominal sum of $9000 because discounting increases the value of future cash flows.
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