Turner Video will invest $96,500 in a project. The firm’s cost of capital is 11 percent. The investment will provide the following inflows. Use Appendix A for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year Inflow 1 $ 34,000 2 36,000 3 31,000 4 39,000 5 43,000 The internal rate of return is 12 percent. a. If the reinvestment assumption of the net present value method is used, what will be the total value of the inflows after five years? (Assume the inflows come at the end of each year.) (Do not round intermediate calculations and round your answer to 2 decimal places.) b. If the reinvestment assumption of the internal rate of return method is used, what will be the total value of the inflows after five years? (Use the given internal rate of return. Do not round intermediate calculations and round your answer to 2 decimal places.) c. Which investment assumption is better? Reinvestment assumption of IRR Reinvestment assumption of NPV
Reinvestment assumption of IRR is IRR
Reinvestment assumption of NPV is cost of capital
1.
=(-96500+34000/1.11+36000/1.11^2+31000/1.11^3+39000/1.11^4+43000/1.11^5)*1.11^5=62726.09797285
2.
=(-96500+34000/1.12+36000/1.12^2+31000/1.12^3+39000/1.12^4+43000/1.12^5)*1.12^5=59577.4938112
3.
NPV
Turner Video will invest $96,500 in a project. The firm’s cost of capital is 11 percent....
Management of a firm with a cost of capital of 10 percent is considering a $126,000 investment with annual cash flow of $52,460 for three years. Use Appendix A and Appendix D to answer the questions. What are the investment’s net present value and internal rate of return? Use a minus sign to enter a negative value, if any. Round your answers for the net present value to the nearest dollar and for the internal rate of return to the...
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