Redwood Orchards Organics purchased a new composter at a cost of $89,000. Annual

Question

Redwood Orchards Organics purchased a new composter at a cost of $89,000. Annual operating cash inflows are expected to be $33,000 each year for four years. At the end of the composter's useful life, the salvage value of the tractor is expected to be $4,000.

Required:

What is the net present value if the cost of capital is 10 percent? Use the time value of money charts for your calculations. (Ignore income taxes.) Round your interim calculations to four decimal places and round your answer to nearest whole number.

Explanation / Answer

NPV is $18,337.61 Statemnet showing Cash flows Particulars Time PVf@10% Amount PV Cash Outflows                           -                       1.00        (89,000.00)        (89,000.00) PV of Cash outflows        (89,000.00) Cash inflows                     1.00                0.9091          33,000.00          30,000.00 Cash inflows                     2.00                0.8264          33,000.00          27,272.73 Cash inflows                     3.00                0.7513          33,000.00          24,793.39 Cash inflows                     4.00                0.6830          33,000.00          22,539.44 Cash inflows                     4.00                0.6830            4,000.00            2,732.05 PV of Cash Inflows        107,337.61 NPV          18,337.61

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