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A new business opportunity has presented itself. The business venture is expected to last for ten years. For the first four years, negative cash flows of $25,000 per year are expected at the end of each year. No net cash flow is expected at the end of year five. A positive cash flow of $33,000 is anticipated at the end of year six. A positive cash flow of $37,000 is expected at the end of years seven through ten. At the end of year ten, the business will be sold for $234,000. What is the present value of all of the future cash flows, assuming a 17.5% annual cost of capital? HINT: Use a timeline. If the business venture will cost you $179,000 to establish today, what is the net present value of the business venture? Should you pursue it?

Financial Management, Finance

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