Question
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
Homework Answers
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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