What is the expected net present value of this investment

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Reference no: EM132063427

Clarion Enterprises is considering investment in a new product line. The firm's cost of capital is 16.0% and the risk-free rate is 3.25%. The project has a risk index of 1.5. The firm uses the following equation to determine the risk adjusted discount rate, RADR, for each project: RADR = Rf + Risk Index * (Cost of capital - Rf)

The proposed product line is expected to have the following relevant cash flows over the next three years:

Initial investment $125000

Year 1 $28000

Year 2 $38000

Year 3 $74000

What is the expected Net Present Value of this investment?

Reference no: EM132063427

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