The Harrison Corporation has analyzed an investment opportunity costing $150,000 and determinedthat the net present value is $8,705. Harrison's management estimated that the investment wouldhave equal annual net cash flows for twelve years, a salvage value of $15,000 after twelve years, andused a discount rate of 12%. What was the annual net cash flow associated with the investmentopportunity? Note: Present value tables are needed.

Question

Quizplus · Accepted Answer

The annual net cash flow is $25,000. This can be calculated using the present value formula:PV = CF * (1 - (1 + r)^-n) / rwhere:PV is the present value of the investmentCF is the annual net cash flowr is the discount raten is the number of yearsIn this case, we have:PV = $150,000r = 12%n = 12Solving for CF, we get:CF = $25,000

The Harrison Corporation Has Analyzed an Investment Opportunity Costing $150,000