Data for capital investment problem NPV approach to capital budgeting Zimboozy $20,000 Investment Opportunity: Purchase Price: Useful Life: Cost of Capital: 5 years 12.00% YEAR PV 0 $ 1 Data: 2 Cash in 0 6,000 10,000 14,000 10,000 6,000 Cash out $20,000 2,500 4,000 5,200 4,800 3,000 Net Flow (20,000) 3,500 6,000 8,800 5,200 3,000 6,500 3 4 Summary of annual cash flows 5 NPV $ YEAR 0 1 2 Cash in Cash out $20,000 $ 6,000 2,500 10,000 4,000 14,000 5,200 10,000 4,800 6,000 3,000 Net Flow (20,000) 3,500 6,000 8,800 5,200 3,000 6,500 IRR approach to capital budgeting 3 4 Input the assumed cost of capital 5 $ YEAR CASH IN Instructions: Analyze this investment opportunity and make a recommendation using the following 2 methods: 0 1 2 3 4 5 6,000 10,000 14,000 10,000 6,000 CASH OUT NET FLOW 20,000 (20,000) 2,500 3,500 4,000 6,000 5,200 8,800 4,800 5,200 3,000 3,000 $ 6,500 PV -20,000.00 3,500.00 6,000.00 8,800.00 5,200.00 3,000.00 6,500.00 (must be 0) * NPV * IRR NPV Invest or not