Question
In: Accounting
Buena Vision Clinic is considering an investment that requires an outlay of $600,000 and promises a...
Buena Vision Clinic is considering an investment that requires an outlay of $600,000 and promises a net cash inflow one year from now of $810,000. Assume the cost of capital is 10 percent.
Required:
1. Break the $810,000 future cash inflow into the three components shown below. Enter all your answers as positive amounts.
| a. The return of the original investment is 600,000 | |
| b. The cost of capital is 60,000 | |
| c. The profit earned on the investment 150,000 |
2. Now, compute the present value of the profit
earned on the investment.
$
3. Compute the NPV of the investment. When
required, round your answer to the nearest dollar.
$
Compare this with the present value of the profit computed in
Requirement 2. What does this tell you about the meaning of
NPV?
Net present value represents the present value of future
profits
Solutions
ekkarill92 answered 1 year agoRelated Solutions
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