The Horizon Company will invest $94,000 in a temporary project that will generate the following cash inflows for the nex...
The Horizon Company will invest $94,000 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.
| Year | Cash Flow | |||
| 1 | $ | 32,000 | ||
| 2 | 29,000 | |||
| 3 | 70,000 | |||
The firm will also be required to spend $15,000 to close down
the project at the end of the three years.
a. Compute the net present value if the cost of
capital is 8 percent. (Negative amount should be indicated
by a minus sign. Do not round intermediate calculations and round
your answer to 2 decimal places.)
Homework Answers
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=32,000/1.08+29,000/1.08^2+70,000/1.08^3
=110060.71(Approx).
Present value of outflows=94,000+15,000/1.08^3
=105907.48(Approx).
NPV=Present value of inflows-Present value of outflows
=110060.71-105907.48
=$4153.23(Approx).
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