Harvey Corp is considering expanding into South America. To finance the expansion, Harvey’s cost of capital is 15%. Harvey’s financial analyst believes that future cash flows from the expansion will be:
2016 $140,000
2017 $425,000
2018 $1,246,000
2019 $1,389,000
2020 to 2024 $1,416,200
If the cost of expansion is estimated at $6,500,000, is the present value of the future cash flows worth more than the cost? By how much?
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