Blossom, Inc., is considering a five-year project with an initial investment of $20,000. What annual free...
Homework Answers
| To have NPV of 0, present value of cash inflows must be equal to initial investment. | |||||||||
| So, | |||||||||
| Annual free cash flows | = | Initial Investment/Present value of annuity of 1 | |||||||
| = | $ 20,000 | / | 3.695897 | ||||||
| = | $ 5,411.41 | ||||||||
| Working: | |||||||||
| Present Value of annuity of 1 | = | (1-(1+i)^-n)/i | Where, | ||||||
| = | (1-(1+0.11)^-5)/0.11 | i | 11% | ||||||
| = | 3.69589702 | n | 5 | ||||||
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