(Ignore Income taxes In this problem.) The Sawyer Corporation has $100,000 to In
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Question
(Ignore Income taxes In this problem.) The Sawyer Corporation has $100,000 to Invest and is considering two different projects, X and Y. The following data are available on the projects: cick here to view Exhibit 8B-1 and Exhibit 88-2 to determine the appropriate discount factors) using tables. ProjectX Project Y $100,000 Cost of equipment needed now Working capital requirement Annual cash operating Inflows Salvage value in 5 years $23,000 $18,000 $ 6,000 Both projects will have a useful life of 5 years, at the end of 5 years, te working capital wil be released for use eisewnee. Sawyer discount rate 6%. The net present value of project Y is closest to: O ($6,749) O$50,516 $6,749 O $35,376Explanation / Answer
NPV = $50,516 Statement showing Cash flows Particulars Time PVf 6% Amount PV Cash Outflows = Investment in Working Capital - 1.00 (100,000.00) (100,000.00) PV of Cash outflows = PVCO (100,000.00) Cash inflows = Annual Inflows 1.00 0.9430 18,000.00 16,974.00 Cash inflows = Annual Inflows 2.00 0.8900 18,000.00 16,020.00 Cash inflows = Annual Inflows 3.00 0.8400 18,000.00 15,120.00 Cash inflows = Annual Inflows 4.00 0.7920 18,000.00 14,256.00 Cash inflows = Annual Inflows 5.00 0.7470 18,000.00 13,446.00 Cash inflows = Release of working capital 5.00 0.7470 100,000.00 74,700.00 PV of Cash Inflows =PVCI 150,516.00 NPV= PVCI - PVCO 50,516.00
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