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Analyzing the given investment proposal

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A project costs $19,000 and promises the following cash flows:

Year 1 $12,500
Year 2 $ 6,000
Year 3 $ 3,000

The appropriate discount rate is 15% per year. Should you invest in this project?
Solve the problem and write a 50-100 word response explaining the results you obtained for the selected question.

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Solution Summary

Solution analyzes the given investment proposal with the help of capital budgeting techniques.

Solution Preview

Please refer attached file for better formatting of tables.

Solution:

Let us first calculate the PV of cash inflows

Year Cash Inflow PV @15%
n Cn Cn/(1+15%)^n
1 $12,500 $10,869.57
2 $6,000 $4,536.86
3 $3,000 $1,972.55
$17,378.98

PV of cash inflows=PV=$17,378.98
Initial Investment=Co=$19,000.00

NPV of ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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