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Net Present Value, Basic Concepts For discount factors use Exhibit 12B.1. Wise Company is considering...

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Accounting

image Net Present Value, Basic Concepts For discount factors use Exhibit 12B.1. Wise Company is considering an investment that requires an outlay of $600,000 and promises an after-tax cash inflow of $746,000 one year from now. The company's cost of capital is 10%. Required: 1. Break the $746,000 future cash inflow into three components: (a) the return of the original investment, (b) the cost of capital, and (c) the profit earned on the investment. Now compute the present value of the profit earned on the investment. If required, round your answers to the nearest dollar. Present value of profit 2. Conceptual Connection: Compute the NPV of the investment. Round your intermediate calculations and final answer to the nearest dollar. X Compare this with the present value of the profit computed in Requirement 1. What does this tell you about the meaning of NPV? Net present value is the same as the present value of future profits

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