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Core Inc. is reviewing an investment proposal. The schedule below provides the initial cost, and net cash flows each year. All cash flows are assumed
Core Inc. is reviewing an investment proposal. The schedule below provides the | |||||
initial cost, and net cash flows each year. All cash flows are assumed to take place at | |||||
the end of the year. There is no salvage value at the end of the investment's life. | |||||
Year | Initial Investment | Annual Net Cash Flows | |||
0 | $199,900 | ||||
1 | . | $50,700 | |||
2 | 50,300 | ||||
3 | 50,200 | ||||
4 | 40,700 | ||||
5 | 40,600 | ||||
Core Inc. uses a | 15 | % target rate of return for new investment proposals. | |||
All calculations must be shown to achieve full marks. You can only achieve 1 mark if only a | |||||
one line solution is given | |||||
a) | What is the net present value of the investment? (12 marks) | ||||
b) | Should the company accept the investment? Clearly state the reasons. (3 marks) |
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