Gomez is considering a $225,000 investment with the following net cash flows. Gomez requires a 15% return on its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
| Net cash flows | |
| Year1 | $60,000 |
| Year 2 | $43,000 |
| Year 3 | $81,000 |
| Year 4 | $131,000 |
| Year 5 | $45,000 |
(a) Compute the net present value of this investment.
(b) Should Gomez accept the investment?
Consider an investment that costs $50,000 and has a cash inflow of $40,000 every year for 5 years. The required return on the investment is 8%. Find the NPV of the investment and determine if it should be purchased.
You have the following information on a project’s cash flows. The cost of capital is 9.3%.
| Year | Cash flows |
|---|---|
| 0 | -$114,000 |
| 1 | 23,000 |
| 2 | 19,000 |
| 3 | 30,000 |
| 4 | 32,000 |
| 5 | 58,000 |
The NPV of the project is $_____.
What is the relationship between the concepts of net present value and shareholder wealth maximization? Explain.
What is the net present value of a project with the following cash flows if the discount rate is 8 percent?
| Year | Cash Flow |
| 0 | -$5,433.67 |
| 1 | -$2,350.99 |
| 2 | -$3,089.16 |
| 3 | $142,649.01 |
| 4 | $70,149.01 |
