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Aerospace Dynamics will invest $100,000 in a project that will produce the following cash flows. The...

Aerospace Dynamics will invest $100,000 in a project that will produce the following cash flows. The cost of capital is 15 percent. (Note that the fourth year’s cash flow is negative.) Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

  

Year Cash Flow
1 $ 50,000
2 36,000
3 30,000
4 (27,000 )
5 60,000

a. What is the net present value of the project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)
  


  
b. Should the project be undertaken?
  

  • Yes

  • No

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Answer #1

b.    Yes.It should be accepted.Here the projected earnings exceeds anticipated cost(solved in a).so it is assumed that investment with a positive NPV will be profitable.

   a.      NPV=Today's value of the expected cashflows-Today's value of invested cash

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