Question

The Horizon Company will invest $65,000 in a temporary project that will generate the following cash inflows for the next three years. Year Cash Flow 1 $ 24,000 2 37,000 3 34,000 The firm will also be required to spend $17,000 to close down the project at the end of the three years. a. Compute the net present value if the cost of capital is 12 percent.

Answer 1

NPV = $-1,974.99

Step-by-step explanation:

Net present value is the present value of after tax cash flows from an investment less the amount invested.

Net present value can be calculated using a financial calculator

Cash flow in year 0 = $-65,000

Cash flow in year 1 = $ 24,000

Cash flow in year 2 = $37,000

Cash flow in year 3 = $34,000 - $17,000 = $17,000

I = 12%

NPV = $-1,974.99

To find the NPV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

I hope my answer helps you