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A company is investing $200,000 in a project which will generate a cash flow of $60,000 each year for five years starting immediately. The company's cost of capital is 7%.
The net present value of the investment to the nearest $100 is $
Suggested Answer: A, C, D
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34 comments · newest first
MO
Moon
11 months ago
$63,200 seems high, double-check those numbers!
JU
Julianna
11 months ago
Totally agree, looks like a good investment!
PH
Phyliss
11 months ago
Wait, are we sure about that 7% cost of capital?
LE
Leonor
12 months ago
That's a solid cash flow for 5 years!
JE
Jeanice
12 months ago
NPV calculation is key here!
ER
Erick
1 year ago
I think the cash flows start immediately, which might mean we treat the first cash flow differently. I hope I remember the formulas correctly!
JE
Jerry
1 year ago
I feel like I might be mixing up the cost of capital with the discount rate. Is it the same thing in this case?
HE
Helga
1 year ago
I remember doing a similar question where we had to find the NPV, but I’m not sure if I should use the cash flow formula directly or discount each cash flow separately.
GA
Gaynell
1 year ago
I think we need to calculate the present value of those cash flows and then subtract the initial investment.
TU
Tu
1 year ago
This seems pretty straightforward. I'll just plug the numbers into the present value formula and do the calculation. As long as I don't make any silly mistakes, I should be able to get the right answer.
AN
Andrew
1 year ago
Hmm, I'm a bit unsure about how to approach this. I know it involves present value calculations, but I'm not sure if I should be using the formula or a financial calculator. I'll have to review my notes on this topic.
CE
Ceola
1 year ago
This looks like a straightforward time value of money problem. I'll start by calculating the present value of the annual cash flows using the given discount rate of 7%.
LI
Lillian
1 year ago
Okay, I think I've got this. I'll need to find the present value of the $60,000 annual cash flows over the 5-year period, and then subtract the initial investment of $200,000 to get the net present value. Shouldn't be too difficult.
BE
Benton
1 year ago
I remember learning about Lewin's model, but I'm drawing a blank on the specifics of the move stage. I'll have to think this through carefully.
RO
Rolland
1 year ago
Okay, let's see. The key information I need to determine is the cost basis of the 2,000 shares surrendered. Once I have that, I can calculate the gain or loss and select the correct answer.
DA
Dana
1 year ago
I think we need the server address, but I'm not sure if it's an APOP3 address or something else.
AN
Anika
1 year ago
I wonder if the company is investing in a time machine to get those cash flows. That would be a real money-maker!
SH
Shenika
1 year ago
Definitely, with a net present value like that, it seems like a smart investment.
WI
Winifred
1 year ago
I agree, $63,200 sounds about right. The company should definitely go for it!
CL
Clare
1 year ago
I think the net present value would be $63,200. What about you?
CH
Chanel
1 year ago
That would be amazing if they had a time machine! But let's focus on the numbers. What do you think the net present value is?
DE
Delsie
2 years ago
Wait, did they say 'to the nearest $100'? Guess I better double-check my work.
MA
Madelyn
1 year ago
Yes, it should be $63,200 since we need to round to the nearest $100.
NG
Ngoc
1 year ago
I think the correct answer is $63,200.
LY
Lyla
1 year ago
I also calculated $63,200 as the net present value.
GL
Glenna
1 year ago
I got $63,200 as the net present value.
AN
Antonio
2 years ago
Alright, let's do this! I can already taste that sweet, sweet certification.
CH
Cherelle
2 years ago
Hmm, 7% cost of capital? That's a bit higher than I was expecting. I wonder if that's going to impact the final result.
BR
Brendan
2 years ago
This seems like a straightforward time value of money problem. I'll plug the numbers into the NPV formula and see what I get.
RA
Raelene
1 year ago
I got an NPV of $63,200. Looks like option A is the correct answer.
AL
Alline
1 year ago
Let's calculate the NPV using the formula.
LE
Leslee
2 years ago
I'm not sure about the answer. Can someone explain how the net present value is calculated in this case?
LA
Lavonna
2 years ago
I agree with Bok. The net present value calculation is based on the discounted cash flows using the cost of capital.
BO
Bok
2 years ago
I think the answer is A) 63200.