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 for year 2, we need to use the formula for NPV:
NPV = ∑(Cashflow / (1+r)^t) - Initial Investment
where r is the discount rate (interest rate) and t is the time period.
We know that NPV = $2,278, r = 10%, initial investment = $28,000, and cash flows for year 1 and year 3.
Substituting the values, we have:
$2,278 = $11,000 / (1+0.1)^1 + CF2 / (1+0.1)^2 + $16,500 / (1+0.1)^3 - $28,000
Solving for CF2, we get:
CF2 = ($2,278 + $28,000 - $11,000 / (1+0.1)^1 - $16,500 / (1+0.1)^3) x (1+0.1)^2
CF2 = $12,000
Therefore, the missing cash flow for year 2 is $12,000. The best choice is B.

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