(Answered) Question net present value basic concepts tree company is

Accounting

Question: Net Present Value, Basic Concepts Tree Company is considering an investment that requires an outlay of $240,000 and promises an after-tax cash inflow one year from now of $277,200. The company's cost of capital is 10 percent.

Required: 1. Break the $277,200 future cash inflow into three components:

(a) the return of the original investment,

(b) the cost of capital, and

2. Conceptual Connection: Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 1. What does this tell you about the meaning of NPV?

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