Data for capital investment problem NPV approach to capital budgeting Investment Opportunity: Purchase Price: Useful Life: Cost of Capital: Whatchit $25,000 5 years 9.00% PV Data: YEAR 0 1 2 3 4 5 NPV Cash in 0 6,000 8,000 9,000 7,000 18,000 5,000 Cash out Net Flow $25,000 $ (25,000) 3,000 3,000 3,000 3,000 6,000 3,000 4,000 3,000 15,000 $ 8,000 pointage 3 3 3 3 3 3 Summary of annual cash flows 3 YEAR 0 1 2 3 4 5 Cash in Cash out $25,000 $ 6,000 3,000 8,000 3,000 9,000 3,000 7,000 3,000 18,000 3,000 $ Net Flow (25,000) 3,000 5,000 6,000 4,000 15,000 IRR approach to capital budgeting Input the assumed cost of capital 7 8,000 PV Instructions: Analyze this investment opportunity and make a recommendation using the following 2 methods: YEAR 0 1 2 3 4 5 NPV CASH IN CASH OUT NET FLOW 25,000 (25,000) 6,000 3,000 3,000 8,000 3,000 5,000 9,000 3,000 6,000 7,000 3,000 4,000 18,000 3,000 15,000 $ 8,000 * NPV * IRR (must be 0) Invest or not? 7 35