Problem 22-16

Appendix D:

Dropdown:

The investment [should, should not] be made.

Problem 22-16 A risky $37,000 investment is expected to generate the following cash flows: 1 $ 18,375 The probability of receiving each cash inflow is 80, 70, and 60 percent, respectively. If the firm's cost of capital is 18 percent, should the investment be made? Use Appendix D to answer the question. Use a minus sign to enter a negative value, if any. Round your answer to the nearest dollar. Year NPV: $ The investment should be made. 2 $ 21,000 3 $ 24,500 Time Period (e.g., year) 12345 6 7 8 9 10 Interest Factors for the Present Value of an Annuity of One Dollar 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 14% 16% 18% 20% 24% 28% 32% 36% 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.893 0.877 0.862 0.847 0.833 0.806 0.781 0.758 0.735 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.690 1.647 1.605 1.566 1.528 1.457 1.392 1.332 1.276 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.402 2.322 2.246 2.174 2.106 1.981 1.868 1.766 1.674 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.037 2.914 2.798 2.690 2.589 2.404 2.241 2.096 1.966 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.605 3.433 3.274 3.127 2.991 2.745 2.532 2.345 2.181 5.795 5.601 5.417 5.242 5.076 4.917 4.766 4.623 4.486 4.355 4.111 3.889 3.685 3.498 3.326 3.020 2.759 2.534 2.399 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.564 4.288 4.039 3.812 3.605 3.242 2.937 2.678 2.455 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 4.968 4.639 4.344 4.078 3.837 3.421 3.076 2.786 2.540 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.985 5.759 5.328 4.946 4.607 4.303 4.031 3.566 3.184 2.868 2.603 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.650 5.216 4.833 4.494 4.193 3.682 3.269 2.930 2.650 6.805 6.495 5.988 5.453 5.029 4.656 4.327 3.776 3.335 2.978 2.683 7.161 6.814 6.194 5.660 5.197 4.793 4.439 3.851 3.387 3.013 2.708 7.487 7.103 6.424 5.842 5.342 4.910 4.533 3.912 3.427 3.040 2.727 7.786 7.367 6.628 6.002 5.468 5.008 4.611 3.962 3.459 3.061 2.740 6.811 6.142 5.575 5.092 4.675 4.001 3.483 3.076 2.750 11 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 12 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 13 12.134 11.348 10.635 9.986 9.394 8.534 8.358 7.904 14 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 15 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.060 7.606 8.312 7.824 6.974 6.265 5.669 5.162 4.730 4.003 3.503 3.088 2.758 8.544 8.002 7.120 6.373 5.749 5.222 4.775 4.059 3.518 3.097 2.763 8.756 8.201 7.250 6.467 5.818 5.273 4.812 4.080 3.529 3.104 2.767 8.950 8.365 7.366 6.550 5.877 5.316 4.844 4.097 3.539 3.109 2.770 9.128 8.514 7.469 6.623 5.929 5.353 4.870 4.110 3.546 3.113 2.772 16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 17 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 18 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 19 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 20 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 25 22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077 7.843 6.873 6.097 5.467 4.948 4.147 3.564 3.122 2.776 30 25.808 22.937 19.600 17.292 15.373 13.765 12.409 11.258 10.274 9.427 8.055 7.003 6.177 5.517 4.979 4.160 3.569 3.124 2.778