Turner Video will invest $84,500 in a project. The firm’s costof capital is 6 percent. The investment will provide the followinginflows. Use Appendix A for an approximate answer but calculateyour final answer using the formula and financial calculatormethods.
| Year | Inflow |
| 1 | $ | 28,000 | |
| 2 | | 30,000 | |
| 3 | | 34,000 | |
| 4 | | 38,000 | |
| 5 | | 42,000 | |
|
The internal rate of return is 12 percent.
a. If the reinvestment assumption of the netpresent value method is used, what will be the total value of theinflows after five years? (Assume the inflows come at the end ofeach year.) (Do not round intermediate calculations andround your answer to 2 decimal places.)
Total value of inflows: ___________________.
b. If the reinvestment assumption of the internalrate of return method is used, what will be the total value of theinflows after five years? (Use the given internal rate ofreturn. Do not round intermediate calculations and round youranswer to 2 decimal places.)
Total value of inflows: ___________________.
c. Which investment assumption isbetter?
| Reinvestment assumption of IRR |
| Reinvestment assumption of NPV |
