Question

You are considering an investment project that will provide the following receipts/ disbursements. You will pay...

You are considering an investment project that will provide the following receipts/ disbursements. You will pay $10,000 immediately and receive $5000 three years from today and $6000 for three years beginning 5 years from today. The investment will require an additional $9,000 be invested in year 4. If you assume a discount rate of 7.5%, what is the present value of this investment? And would you invest in this project? (hint: draw a time line with expected cash flows)

A.

Without further information, it is not possible to calculate.
B.

$1,030.75 ; Yes, I would invest in this project
C.

-$2,120.75; ; No, I would not invest in this project
D.

-$1,030.75 ; No, I would not invest in this project
E.

$2,120.75; Yes, I would invest in this project
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Homework Answers

Answer #1
Year Outflow Inflow Total DF PV
0 $-10,000.00 $-10,000.00 1 $-10,000.00
1 $            -   0.930233 $            -  
2 $            -   0.865333 $            -  
3 $5,000.00 $   5,000.00 0.804961 $   4,024.80
4 $ -9,000.00 $ -9,000.00 0.748801 $ -6,739.20
5 $6,000.00 $   6,000.00 0.696559 $   4,179.35
6 $6,000.00 $   6,000.00 0.647962 $   3,887.77
7 $6,000.00 $   6,000.00 0.602755 $   3,616.53
NPV $ -1,030.75

Hence option D is correct

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