Turner Video will invest $58,500 in a project. The firm’s cost of capital is 12 percent. The investment will provide the following inflows.
Year Inflow
1 ........$15,000
2 ........ 17,000
3 ........ 21,000
4 ........ 25,000
5 ........ 29,000
The internal rate of return is 11 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?