A project is expected to provide the cash flows indicated below. Would you invest GH¢100000 in this project if the cost of capital is: (a) ji = 7%, (b) ji = 14%? Year end 1 2 3 4 Cash flow GH¢40 000 GH¢25 000 GH¢35 000 GH¢30 000

A project is expected to provide the cash flows indicated below. Would you invest GH¢100000 in this project if the cost of capital is: (a) ji = 7%, (b) ji = 14%? Year end 1 2 3 4 Cash flow GH¢40 000 GH¢25 000 GH¢35 000 GH¢30 000

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

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

A project is expected to provide the cash flows indicated below. Would you invest
GH¢100000 in this project if the cost of capital is: (a) ji = 7%, (b) ji = 14%?
%3D
Year end
1
3
4
Cash flow GH¢40 000 GH¢25 000 GH¢35 000 GH¢30 000

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