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A risky $420,000 investment is expected to generate the following cash flows: Year 1 $114,500 2 $173,875 3 $159,284 4 $137,500 a. If the
A risky $420,000 investment is expected to generate the following cash flows: Year 1 $114,500 2 $173,875 3 $159,284 4 $137,500 a. If the firm's cost of capital is 14 percent, should the investment be made? Use Appendix B to answer the question. Use a minus sign to enter a negative value, if any. Round your answer to the nearest dollar. NPV: $ The investment should be made. b. An alternative use for the $420,000 is a four-year U.S. Treasury bond that pays $29,400 annually and repays the $420,000 at maturity. Management believes that the cash inflows from the risky investment are equivalent to only 80 percent of the certain investment, which pays 7 percent. Should the investment be made? Use Appendix B to answer the question. Do not round other intermediate calculations. Use a minus sign to enter a negative value, if any. Round your answer to the nearest dollar. NPV: $ The investment should not be made.
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