nsider a project with a net investment of $40,000 and the following net cash flows: Annual Cash Flow Year 1 $25,000 Year 2 $36,000 Year 3 $8,000 If the company's cost of capital is 5%, what would be the net present value of the project? a. $19,560 b. $19,800 c. $20,900

nsider a project with a net investment of $40,000 and the following net cash flows: Annual Cash Flow Year 1 $25,000 Year 2 $36,000 Year 3 $8,000 If the company's cost of capital is 5%, what would be the net present value of the project? a. $19,560 b. $19,800 c. $20,900

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 14P

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Question

Consider a project with a net investment of $40,000 and the following net cash flows:

Annual Cash Flow

Year 1	$25,000
Year 2	$36,000
Year 3	$8,000

If the company's cost of capital is 5%, what would be the net present value of the project?

$19,560

$19,800

$20,900

$23,373

Between equity and debt capital

Debt is safer than equity

No option is correct

Both debt and equity are equally risky

Equity is riskier than debt

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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