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    Finance: Net present value.

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    Outflows
    Initial Investment now: $235,000
    End of year:
    1: $150,000
    2: $200,000
    3: $250,000
    4: $300,000
    5: $350,000

    Inflows
    Initial investment now: $-------
    End of Year:
    1: $200,000
    2: $250,000
    3. $300,000
    4: $450,000
    5: $500,000

    1. Compute the NPV for all these cash flows. This should be a single amount. Use a discount rate of 14%.
    2. Suppose the minimum desired rate was 12%. Without doing further calculations, determine whether the NPV is positive or negative. Explain.

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    Solution Preview

    PRESENT VALUES OF CASH INFLOWS

    Outflows
    Initial investment $235,000
    End of year:
    1 $150,000
    2 $200,000
    3 $250,000
    4 $300,000
    5 $350,000

    Inflows
    Initial investment $0
    End of year:
    1 $200,000
    2 $250,000
    3 $300,000
    4 $450,000
    5 $500,000

    1. Compute the NPV for all these cash flows. This should be a single ...

    Solution Summary

    The problem deals with applying the time value of money concept.

    $2.19

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