Question

4. If the cost of capital is 8%, will a company that that would pay $100,000 investment in equipment in year 0, and then receives $16,000 per year each of the next eight years (but no salvage value) make the investment?

multiple choice 4

• No

• Yes

5. What would the net cash flows (not discounted) for a company that makes a $100,000 investment in year 0, and then receives $16,000 per year each of the next eight years?

multiple choice 5

• $100,000

• $28,000

• $0

• $128,000

Answer 1

4)'	Year	Cash Flow	PV Factor	PV Of Cash Flow
	a	b	c=1/1.08^a	d=b*c
	0	$ -1,00,000	1	$     -1,00,000.00
	1	$        16,000	0.925926	$           14,814.81
	2	$        16,000	0.857339	$           13,717.42
	3	$        16,000	0.793832	$           12,701.32
	4	$        16,000	0.73503	$           11,760.48
	5	$        16,000	0.680583	$           10,889.33
	6	$        16,000	0.63017	$           10,082.71
	7	$        16,000	0.58349	$             9,335.85
	8	$        16,000	0.540269	$             8,644.30
	Net Present value	$           -8,053.78
	Since NPV is negative , company should not make the investment.
5)	Net cash flow = ($16000*8) -100000
	=$128000-100000
	=$28000