Buena Vision Clinic is considering an investment that requires an outlay of $600,000 and promises a net cash inflow one year from now of $810,000 Assume the cost of capital is 10 percent Required 1 Break the $810,000 future cash inflow into three components a The return of the original investment b...

1 a Return of the original investment 600000 b Cost of capital 600000 010 60000 c Profit earned ...

Buena Vision Clinic is considering an investment that requires an outlay of $600,000 and promises a net

Question:

Buena Vision Clinic is considering an investment that requires an outlay of $600,000 and promises a net cash inflow one year from now of $810,000. Assume the is 10 percent.
Required:
1. Break the $810,000 future cash inflow into three components:
a. The return of the original investment
b. The The profit earned on the investment
2. Now, compute the present value of the profit earned on the investment.
3. Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV?
Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...