[munsell128]

Planning for capital investments is an important function of management. You are provided with the following data concerning a proposed capital investment: cash cost $220,000, net annual cash flows $40,000, present value factor of cash inflows for ten years 5065 (rounded). Determine the net present value, and indicate whether the investment should be made. (1) Explain the pros and cons of using this method to evaluate a capital expenditure and (2) show all computations required to arrive at the correct solution.