Falkland, Inc., is considering the purchase of a patent that has a cost of $51,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: Year 1 Year 3 Net income Year 2 $5,100 $6,500 $6,300 17,250 18,550 18,050 Year 4 B. What happens if the required rate of return increases? If the required rate of return increases, the NPV will be lower $3,000 14,700 Operating cash flows (Click here to see present value and future value tables) A. What is the NPV of the investment? Round your present value factor to three decimal places and final answer to the nearest dollar.
Falkland, Inc., is considering the purchase of a patent that has a cost of $51,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: Year 1 Year 3 Net income Year 2 $5,100 $6,500 $6,300 17,250 18,550 18,050 Year 4 B. What happens if the required rate of return increases? If the required rate of return increases, the NPV will be lower $3,000 14,700 Operating cash flows (Click here to see present value and future value tables) A. What is the NPV of the investment? Round your present value factor to three decimal places and final answer to the nearest dollar.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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CH11 Q6
Transcribed Image Text:Falkland, Inc., is considering the purchase of a patent that has a cost of $51,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is
expected to generate the following amounts of annual income and cash flows:
Year 1
Year 2
Net income
Year 3
$6,300
18,050
$5,100
$6,500
Operating cash flows
17,250
18,550
(Click here to see present value and future value tables)
A. What is the NPV of the investment? Round your present value factor to three decimal places and final answer to the nearest dollar.
Year 4
B. What happens if the required rate of return increases?
If the required rate of return increases, the NPV will be lower
$3,000
14,700
✓.
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