Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Roboto Company is considering an investment that requires an outlay of $450,000 and promises an after-tax cash inflow one year from now of $505,029. The

Roboto Company is considering an investment that requires an outlay of $450,000 and promises an after-tax cash inflow one year from now of $505,029. The company's cost of capital is 8 percent.

Required:

1. Break the $505,029 future cash inflow into three components: (a) the return of the original investment, (b) the cost of capital, and (c) the profit earned on the investment. Now compute the present value of the profit earned on the investment.

(a) Return of the original investment $
(b) Cost of capital $
(c) Profit earned on the investment $

Round your answer to whole dollar amount. Present value of profit:

2. Compute the NPV of the investment. Round present value calculations and your final answer to the nearest dollar. $fill in the blank 5

Compare this with the present value of the profit computed in Requirement 1.

What does this tell you about the meaning of NPV?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting For Inventory

Authors: Steven M. Bragg

2nd Edition

1938910648, 9781938910647

More Books

Students also viewed these Accounting questions