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?