You have the opportunity to invest in a project with the following cash flows.   Initial investment/Outlay today: $11,000. Cashflow back to you in 1 year $6000 Cashflow back to you in 2 years $5000 Scrap Value in 2 years $500

International Financial Management
14th Edition
ISBN:9780357130698
Author:Madura
Publisher:Madura
Chapter14: Multinational Capital Budgeting
Section: Chapter Questions
Problem 1IEE
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You have the opportunity to invest in a project with the following cash flows.

 

Initial investment/Outlay today: $11,000.

Cashflow back to you in 1 year $6000

Cashflow back to you in 2 years $5000

Scrap Value in 2 years $500

Assume interest rates are 5% in the 1 year and 7% in the 2 year. (tip: use the spreadsheet “NPV” from Moodle to helpin your calculations)

 

a. Calculate the NPV of the project (show formula/workings)?
b. Should you invest in this project? Why ?
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