Dickerson Co. is evaluating a project requiring a capital expenditure of $810,00

Question

Dickerson Co. is evaluating a project requiring a capital expenditure of $810,000. The project has an estimated life of 4 years and no salvage value. The estimated net income and net cash flow from the project are as follows:

The company's minimum desired rate of return is 12%. The present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is 0.893, 0.797, 0.712, and 0.636, respectively.

Required:

Determine the net present value. Enter negative values as negative numbers.
$

Year Net Income Net Cash Flow 1 $75,000        $280,000        2 100,000        300,000        3 109,000        200,000        4 36,000        120,000        $320,000        $900,000       

Explanation / Answer

Calculation of NPV of Project Particulars Year 12% Factor Cash Inflow Present value C D C X D Cash Inflow Net Cash Inflow 1                0.893                280,000         250,040.00 2                0.797                300,000         239,100.00 3                0.712                200,000         142,400.00 4                0.636                120,000           76,320.00 A. Total Cash Inflow - PV         707,860.00 Cash Outflow Cost of Project 0            1.00000                810,000         810,000.00 B. Total Cash Outflow - PV         810,000.00 NPV (A - B)      (102,140.00)

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