An investment with total costs of $14,000 will generate total revenues of $16,000 for one year. Use Appendix B to answer the questions. Use a minus sign to enter negative values, if any. Round your answers to the nearest dollar.
If funds cost 18 percent, the NPV is $ .
What would be your advice to management?
The investment should/should not be made.
Would your answers be different if the cost of capital is 8 percent?
If funds cost 8 percent, the NPV is $ .
The investment should/should not be made.
Appendix B
NPV = -initial investment + PV of future cash flows
Present value = Future value/(1+i)^n
i = interest rate per period
n= number of periods
=>
NPV = -14000 + 16000 * 0.847
= -448
The investment should not be made since NPV is negative
An investment with total costs of $14,000 will generate total revenues of $16,000 for one year....
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