The Horizon Company will invest $60,000 in a temporary project that will generate the following cash...
The Horizon Company will invest $60,000 in a temporary project that will generate the following cash inflows for the next three years. Year Cash flow 1 $15,000 2 25,000 3 40,000 If the cost of capital is 10 percent, should the investment be undertaken?
Homework Answers
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=15,000/1.1+25,000/1.1^2+40,000/1.1^3
=$64,350.11
NPV=Present value of inflows-Present value of outflows
=$64,350.11-$60,000
=$4,350.11(Approx).
Hence since net present value is positive;investment must be undertaken.
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