Can you please help my break down this problem step by step The Horizon Corporat
ID: 2427793 • Letter: C
Question
Can you please help my break down this problem step by step
The Horizon Corporation will invest 60,000 in a temporary project that will generate the following cash flows in the next year.
Year Cash Flow
1 15,000
2 25,000
3 40,000
The firm will also be required to spend 10,000 to close down the project at the end of the three years. If the cost of capital is 10%, should the investment be undertaken? why or why not?
Explanation / Answer
calculation of npv for the project
so this investment is not taken becoz of npv of this project is negative. of $ ( 3,185)
year cash flows discounting factor @ 10% dicounted amount 0 $ (60,000) 1 $ (60,000) 1 $ 15,000 0.909 $ 13,635 2 $ 25,000 0.826 $ 20,650 3 $ 40,000 0.751 $ 30,040 3 $ (10,000) 0.751 $ (7,510) npv= $ (3,185)