Coffee Corp., will invest $48,000 in a project. The firm's

Coffee Corp., will invest $48,000 in a project. The firm's discount rate (cost of capital) is 9 percent. The investment will provide the following inflows.
1.....................................................$10,000
2.....................................................10,000
3.....................................................16,000
4.....................................................19,000
5.....................................................20,000
The internal rate of return is 15 percent.
a. If the reinvestment assumption of the net present value method is used, what will be the total value of the inflows after five years? (Assume the inflows come at the end of each year.)
b. If the reinvestment assumption of the internal rate of return method is used, what will be the total value of the inflows after five years?
c. Generally is one investment assumption likely to be better than another?
Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment...
Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...

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