suppose company A invests $10,000,000 in factory equipment to manufacture TV sets and estimates that the TV model being produced will be obsolete after three years.  Cash flows are.

Year 0 Cash outlay of                                                               ($20,000,000)

Year 1 net profit from TV model                                               $ 10,000,000

Year 2 net profit from TV model                                               $ 14,000,000

Year 3 net profit from TV model                                               $ 12,000,000

Year 4 after tax proceeds from sale of equipment                  $ 2,000,000

The company's cost of capital is 17% which means future cash flows must be discounted by this rate.  Based on the net present value would the company make the $20,000,000 or look for other ways to invest the money?

Answer rating: 100% (QA)

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