You are offered an investment opportunity that costs you $28,000, has a net present value (NPV)of $2278, lasts for three years, has interest rate of 10%, and produces the following cash flows: The missing cash flow from year 2 is closest to ________.

Question

You are offered an investment opportunity that costs you $28,000, has a net present value (NPV)of $2278, lasts for three years, has interest rate of 10%, and produces the following cash flows:  The missing cash flow from year 2 is closest to ________.

Quizplus · Accepted Answer

To find the missing cash flow in year 2, we need to use the NPV formula and solve for the missing cash flow.

NPV = CF1/ (1+r)^1 + CF2/ (1+r)^2 + CF3/ (1+r)^3 - Initial Investment

$2278 = -$28,000 + $10,000/ (1+0.1)^1 + X/ (1+0.1)^2 + $18,000/ (1+0.1)^3

Solving for X, we get $12,004.

Therefore, the closest answer choice is B, $12,000.

You Are Offered an Investment Opportunity That Costs You $28,000