Nu Things, Inc., is considering an investment in a business venture with the following anticipated cash flow results: ΕΟΥ Cash Flow -$85,000 1 $21,000 2 $20,000 3 $19,000 4 $18,000 5 $17,000 $16,000
Nu Things, Inc., is considering an investment in a business venture with the following anticipated cash flow results: ΕΟΥ Cash Flow -$85,000 1 $21,000 2 $20,000 3 $19,000 4 $18,000 5 $17,000 $16,000
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
Related questions
Question
Determine the investment's worth.%
Transcribed Image Text:Title: Investment Analysis for Nu Things, Inc.
Nu Things, Inc., is evaluating a potential investment in a business venture. The following details outline the anticipated cash flow results over a 20-year period:
| EOY | Cash Flow |
|-----|------------|
| 0 | -$85,000 |
| 1 | $21,000 |
| 2 | $20,000 |
| 3 | $19,000 |
| 4 | $18,000 |
| 5 | $17,000 |
| 6 | $16,000 |
| 7 | $15,000 |
| 8 | $14,000 |
| 9 | $13,000 |
| 10 | $12,000 |
| 11 | $11,000 |
| 12 | $10,000 |
| 13 | $9,000 |
| 14 | $8,000 |
| 15 | $7,000 |
| 16 | $6,000 |
| 17 | $5,000 |
| 18 | $4,000 |
| 19 | $3,000 |
| 20 | $2,000 |
**Assumptions:**
- The Minimum Acceptable Rate of Return (MARR) is 20% per year.
This table helps in assessing the viability of the investment by projecting future cash flows and evaluating them against the company's return expectations. The negative cash flow in year 0 represents the initial investment cost, while positive cash flows for subsequent years represent expected returns.
**Analysis Tip:**
To further evaluate this investment, consider calculating Net Present Value (NPV) and Internal Rate of Return (IRR) to determine the investment’s profitability above the MARR of 20%.
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