Reinvestment assumption of net present value method

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Turner Video will invest $78,500 in a project. The firm’s cost of capital is 14 percent. The investment will provide the following inflows. Use Appendix A for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year Inflow 1 $ 25,000 2 27,000 3 31,000 4 35,000 5 39,000 The internal rate of return is 18 percent. a. If the reinvestment assumption of the net present value method is used, what will be the total value of the inflows after five years? (Assume the inflows come at the end of each year.) (Do not round intermediate calculations and round your answer to 2 decimal places.) b. If the reinvestment assumption of the internal rate of return method is used, what will be the total value of the inflows after five years? (Use the given internal rate of return. Do not round intermediate calculations and round your answer to 2 decimal places.) c. Which investment assumption is better? Reinvestment assumption of IRR Reinvestment assumption of NPV.

Reference no: EM131853857

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