You are offered an investment opportunity that costs you $28,000, has an 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 an 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 can use the formula for calculating the Net Present Value (NPV) of an investment:

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

Where CF is the cash flow in each year, r is the interest rate, and the numbers in the brackets represent the year of the cash flow. We are given the values for NPV, CF1, CF3, r, and the Initial Investment, and we need to solve for CF2.

Plugging in the values, we get:

2278 = 7000/(1+0.1)^1 + CF2/(1+0.1)^2 + 14000/(1+0.1)^3 - 28000

Simplifying and solving for CF2, we get:

CF2 = 12000

Therefore, the missing cash flow in year 2 is $12,000.

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