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XYZ will invest $160,000 in a project that will produce the cash flow shown below The cost of capital is 11 percent. Should the project be undertaken? Cash Flow S54,000 66,000 (60,000) 57,000 120,000 Y ear 2

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Answer #1
CALCULATION OF THE PRESENT VALUE OF THE INVESTMENT PROJECT
Year Cash Flow (A) PVF of $ 1 @ 11% (B) Present Value (A X B)
0 -160000                               1.00000 $                               -1,60,000
1 54000                               0.90090 $                                     48,649
2 66000                               0.81162 $                                     53,567
3 -60000                               0.73119 $                                   -43,871
4 57000                               0.65873 $                                     37,548
5 120000                               0.59345 $                                     71,214
Total   $                                       7,106
Present Value of the investment in project Is $ 7,106 is positive it means the
this project is profitable so it can be accepted
Answer = Yes project should be undertaken because the Net present value is positive
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