Question

Nu Things, Inc., is considering an investment in a business venture with the following anticipated cash flow results: Cash Flow EOY 0 -$80,000 $30,000 1 $29,000 2 $28,000 3 $27,000 $26,000 6 $25,000 $24,000 7 $23,000 8 $22,000 $21,000 10 $20,000 11 $19,000 12 13 $18,000 $17,000 14 $16,000 15 $15,000 16 $14,000 17 18 $13,000 19 $12,000 20 $11,000 Assume MARR is 20% per year. Based on an external rate of return analysis Determine the investment's worth. Carry all interim calculations to 5 decimal placess and then round your final answer to 1 decimal place. The tolerance is ±0.2. State the decision rule you used to arrive at this conclusion State whether or not your results indicate the investment should be undertaken.

Answer 1

Solution EOY Answer 1 Investment worth today is $44,347 Cash Flow(In $) PV factor(@20%) Discounted value $ 80,000.00 1.00000 $ 80,000.00000 Method used to detrmine investment worth is calculation of net present value i.e sum total of all discounted Answer 2 cashflows during investment period 21 3. Answer 3 Since the NPV is +ve, the investment should be undertaken 5 6 7 8 10 $ 30,000.00 $ 29,000.00 Ś28000 $ 28,000.00 $ 27,000.00 $ 26,000.00 $ 25,000.00 $ 24,000.00 $ 23,000.00 $ 22,000.00 $ 21,000.00 $ 20,000.00 $ 19,000.00 $ 18,000.00 $ 17,000.00 $ 16,000.00 $ 15,000.00 $ 14,000.00 $ 13,000.00 $ 12,000.00 $ 11,000.00 NPV Rounded off to 1 decimal 0.83333 0.69444 0.57870 0.48225 0.40188 0.33490 0.27908 0.23257 0.19381 0.16151 0.13459 0.11216 0.09346 0.07789 0.06491 0.05409 0.04507 0.03756 0.03130 0.02608 11 $ 25,000.00000 $ 20,138.88889 $ 16,203.70370 $ 13,020.83333 $ 10,448.81687 $ 8,372.44942 $ 6,697.95953 $5,349.06491 $ 4,263.74739 $ 3,391.61724 $ 2,691.75971 $ 2,130.97644 $1,682.34982 $ 1,324.07162 $ 1,038.48754 $811.31839 $ 631.02542 $ 488.29348 $ 375.61037 $ 286.92459 $ 44,347.89867 $ 44,347.9 12 14 16 18 19 20