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You have the opportunity to make an investment that costs $900,000. If you make this investment...

You have the opportunity to make an investment that costs $900,000. If you make this investment now, you will receive $100,000 one year from today, $250,000 and $800,000 two and three years from today, respectively. The appropriate discount rate is 12%. Should you make the investment?

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Expert Solution

Statement showing Cash flows
Particulars Time PVf 12% Amount PV
Cash Outflows                        -                        1.00                       (900,000.00)                       (900,000.00)
PV of Cash outflows = PVCO                       (900,000.00)
Cash inflows                    1.00                 0.8929                         100,000.00                           89,285.71
Cash inflows                    2.00                 0.7972                         250,000.00                         199,298.47
Cash inflows                    3.00                 0.7118                         800,000.00                         569,424.20
PV of Cash Inflows =PVCI                         858,008.38
NPV= PVCI - PVCO                         (41,991.62)
No since NPV is negative

jeff jeffy answered 1 year ago
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