Horn Company is evaluating an investment project that has a 6-year life and prod
ID: 2373273 • Letter: H
Question
Horn Company is evaluating an investment project that has a 6-year life and produces the following cash inflows: Years 1 - 4 ............. $20,000 (each year) Year 5 .................. $30,000 Year 6 .................. ??????? The initial investment for this project is $86,000 and the net present value of this project was calculated to be $5,057 at a cost of capital of 10%. Calculate the amount of the year 6 cash inflow associated with this investment project. Ignore income tax effects. Thank you!Explanation / Answer
Let x equal year six cash inflow.
To calculate the net present value, you discount the future cash inflows and outflows:
5,057 = -86,000 + 20,000/(1+.1) + 20,000/(1+.1)^2 + 20,000/(1+.1)^3 + 20,000/(1+.1)^4 + 30,000/(1+.1)^5 + x/(1+.1)^6
5,057 = -86,000 + 18181.82 + 16528.93 + 15026.30 + 13660.27 + 18627.64 + x/1.771561
9032.05 = x/1.771561
X = 16,000.83
Answer: 16,000.83
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.