Wise Company is considering an investment that requires an outlay of $600,000 an

Question

Wise Company is considering an investment that requires an outlay of $600,000 and promises an after-tax cash inflow 1 year from now of $689,500. The company's cost of capital is 8%.

Required:

1.  Break the $689,500 future cash inflow into three components: (a) the return of the original investment, (b) the cost of capital, and (c) the profit earned on the investment. Now compute the present value of the profit earned on the investment. If required, round your answers to the nearest dollar.

(a) Return of the original investment$ (b) Cost of capital$ (c) Profit earned on the investment$

Wise Company is considering an investment that requires an outlay of $600,000 and promises an after-tax cash inflow 1 year from now of $689,500. The company's cost of capital is 8%. Required: Break the $689,500 future cash inflow into three components: (a) the return of the original investment, (b) the cost of capital, and (c) the profit earned on the investment. Now compute the present value of the profit earned on the investment. If required, round your answers to the nearest dollar. Return of the original investment $ Cost of capital $ Profit earned on the investment $ Present value of profit $ Conceptual Connection: Compute the NPV of the investment. Round your intermediate calculations and final answer to the nearest dollar. $ I just need the Present value of profit and #2 answered (In a detailed answer please).

Explanation / Answer

PV of profit = 41500/1.08 = 38425.93 = 38426

2) NPV = -600000 + 689500/1.08 = 38425.93 = 38426

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