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

B) NPV = PV benefits - PV of costs
$2,278 = $10,000 / (1.10)1 + X / (1.10)2 + $15,000 / (1.10)3 - $28,000
$30,278 = $10,000 / (1.10)1 + X / (1.10)2 + $15,000 / (1.10)3
$30,278 = $9,091 + X / (1.10)2 + $11,270
$9,917 = X / (1.10)2
X = 11,999.57

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