Problem: Investment Decision
Analyze the following scenario: Duncombe Village Golf Course is considering the purchase of new equipment that will cost $1,200,000 if purchased today and will generate the following cash disbursements and receipts. Should Duncombe pursue the investment if the cost of capital is 8 percent? Why? Clearly label your calculations in your analysis.
|
Year
|
Cash Receipts
|
Cash Disbursements
|
Net Cash Flow
|
|
1
|
1,000,000
|
500,000
|
500,000
|
|
2
|
925,000
|
475,000
|
450,000
|
|
3
|
800,000
|
450,000
|
350,000
|
|
4
|
750,000
|
430,000
|
320,000
|