The Wilbury Company has analyzed an investment opportunity and determined that the netpresent value is -$19,625. Wilbury's management estimated that the investment would generate cashinflows of $75,000 a year for five years. What was the initial cost of the investment assuming thatWilbury utilized a 12% discount rate? Note: Present value tables are needed.

Question

Quizplus · Accepted Answer

The initial cost of the investment can be calculated using the present value formula:PV = CF / (1 + r)^nwhere:PV is the present valueCF is the cash flowr is the discount raten is the number of yearsIn this case, the net present value is -$19,625, the cash flow is $75,000, the discount rate is 12%, and the number of years is 5. Substituting these values into the formula, we get:-$19,625 = $75,000 / (1 + 0.12)^5Solving for PV, we get:PV = $75,000 / (1.12)^5PV = $290,000Therefore, the initial cost of the investment was $290,000.

The Wilbury Company Has Analyzed an Investment Opportunity and Determined