Dynaflex Corp. is considering an investment project that costs $900 today. It expects the project will yield income of $350 at the end of years 1, 2, and 3. If the interest rate is 10%, the firm

Question

Quizplus · Accepted Answer

To determine whether Dynaflex Corp. should undertake the investment, we calculate the Net Present Value (NPV) of the project. The NPV is calculated by discounting the future cash flows back to their present value and subtracting the initial investment. Using a 10% discount rate, the NPV calculation is as follows:NPV = -900 + 350/(1+0.10)^1 + 350/(1+0.10)^2 + 350/(1+0.10)^3NPV = -900 + 318.18 + 289.26 + 263.87 = -28.69Since the NPV is negative, Dynaflex Corp. should forgo the investment.