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# Interest watch

1. Hi,

Is this the way, I should work out this question and how do I find P from it.

A firm has an investment oppurtunity which requires an expenditure now of £25,000. Its anticipated return will be £18,000 in one year's time and £8,000 in two year's time. Find the present value of this investment oppurtunity if the oppurtunitys cost of capital is 8%, an use your answer to suggest whether you would advise the firm to undertake the investment or not.

25,000 = P (1+0.08)^10,000

Thanks
xx
2. year cashflow disc factor pv
0 -25000 (1.08)^0
1 18000 (1.08)^-1
2 8000 (1.08)^-2

multiply cashflow by disc factor to get pv. sum the pvs, it's worthwhile if it's >0.
3. Thanks. Do i just work out the values for years 1 and 2 next? I got £23525.38. Does that look right?

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