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Scarborough Petroleum is considering an investment in the El Paso. Given the following information, calculate NPV, interpret the results, and make a recommendation to Scarborough.
Scarborough Petroleum is considering an investment in the El Paso. Given the following information, calculate NPV, interpret the results, and make a recommendation to Scarborough.
Initial investment in project | ($150,000) |
Estimated cash flows in Year 1 | $60,000 |
Estimated cash flows in Year 2 | $40,000 |
Estimated cash flows in Year 3 | $30,000 |
Estimated cash flows in Year 4 | $20,000 |
Estimated cash flows in Year 5 | $10,000 |
Discount rate used by Scarborough | 10% |
Present Value Factor at 1 year | .909 |
Present Value Factor at 2 years | .826 |
Present Value Factor at 3 years | .751 |
Present Value Factor at 4 years | .683 |
Present Value Factor at 5 years | .621 |
Calculate NPV (round to nearest whole dollar, include $ and commas, and parentheses if negative):
Will this investment yield more than or less than the discount rate of 10%?
Based on NPV, should Scarborough invest in El Paso? (yes or no)
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