An individual borrowed money at the bank to send his daughter to college. Instead of purchasing Credit life insurance, he used a
1 answer:
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Answer:
NPV -6,422.07908
The investment is not profitable at current cost of capital os 11.6%
Explanation:
Sister Pools 11.6% after tax cost of capital
Contructions 10.3% after tax cost of capital
- 85,000
cash flow 17,000 for next 7 years
<u>We will calculate the present value of a 7-years annuity of 17,000 at 11.6% </u>rate
<em>We use Sister Pools rate because we are asked for this company and there is no indication about a change in the cost of capital condition.</em>
<em />
PV = 78,577.92092
<u>Next we subtract the investment cost to get the Net Present Value</u>
78,577.92092 - 85,000 = -6,422.07908