Question

Check my work The Horizon Company will invest $79,000 in a temporary project that will generate the following cash inflows for the next three years. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. points Year Cash Flow 1 $22,000 2 35,000 42,000 eBook The firm will also be required to spend $21,000 to close down the project at the end of the three years. a. Compute the net present value if the cost of capital is 9 percent. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.) Hint Net present value Print References b. Should the investment be undertaken? O No Yes

Answer 1

NPV is sum of present value of all cash flows.
Present value of cash flows = cash flows * PVF
PVF formula = 1/(1+Discount rate or required Return)^period
For year 1, PVF = 1/(1+9%)^1=	0.9174311927
For year 2, PVF = 1/(1+9%)^2=	0.8416799933
and so on.
Project
	Cash flows	P.V.F.@9%	PV of cash flows
Year 0	-79000	1	-79,000.00
Year 1	22000	0.9174311927	20,183.49
Year 2	35000	0.8416799933	29,458.80
Year 3	42000	0.7721834801	32,431.71
Year 3	-21000	0.7721834801	-16,215.85
NPV			-13,141.86

a.

NPV of project is -$13141.86.

b.

NPV is negative. So investment should not be undertaken.