The Horizon Company will invest $52,000 in a temporary project that will generat
ID: 2720529 • Letter: T
Question
The Horizon Company will invest $52,000 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.
Compute the net present value if the cost of capital is 9 percent. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)
Year Cash Flow 1 $ 17,000 2 32,000 3 22,000
Explanation / Answer
A. (17000 x (PVF(1yr, 9%))+( 32000 x PVF(2yr, 9%))+ (22000 x PVF(1yr, 9%)) - 52000
((17000 x .9174) + (32000 x .8416) + (22000 x .7721) ) -52000
= 59513.20 - 52000.00
= 7513.20 $ is NPV
B. Since, The NOV is positive and less than than cost of closing, the investment must be undertaken. Hence the answer is Yes.