The Horizon Company will invest $52,000 in a temporary project that will generat

Question

The Horizon Company will invest $52,000 in a temporary project that will generate the following cash inflows for the next three years. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

  

  

Compute the net present value if the cost of capital is 9 percent. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)

  

  

Year Cash Flow 1 $ 17,000 2 32,000 3 22,000

Explanation / Answer

A. (17000 x (PVF(1yr, 9%))+( 32000 x PVF(2yr, 9%))+ (22000 x PVF(1yr, 9%)) - 52000

((17000 x .9174) + (32000 x .8416) + (22000 x .7721) ) -52000

= 59513.20 - 52000.00

= 7513.20 $ is NPV

B. Since, The NOV is positive and less than than cost of closing, the investment must be undertaken. Hence the answer is Yes.

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