The Arlesia Company sells television antennas. The company is considering the pu
ID: 2467467 • Letter: T
Question
The Arlesia Company sells television antennas. The company is considering the purchase of the entire inventory of Belen Antenna Company, a manufacturer of high quality television antennas, Which is going out of business. These antennas would cost $200,000. delivered to Artcsia's warehouse. Artcsia's minimum acceptable rate of return on investments is 20% on a before tax basis These items would be considered inventory- to Artcsia and would not be depreciable for accounting or tax purposes. Compute the net present value of Artcsia's investment, based upon the following assumed patterns of net cash inflows that could result from the sale of these antennas. Round all calculations to the nearest whole dollar. (1)Net cash inflows of S75.000 each year for five year. (2)Net cash inflows of S100.000 during the first year, S65.000 in the second and third years, and $30,000 in the fourth and fifth years.Explanation / Answer
Formula for NPV= Present cash inflow*(1+% of return)^-t 1 Year Cash Inflow net present value 0 -200,000 -200,000 1 75000 62,500 2 75000 52,083 3 75000 43,403 4 75000 36,169 5 75000 30,141 Total net present value 24,296 2 Year Cash Inflow net present value 0 -200,000 -200,000 1 100000 83,333 2 65000 45,139 3 65000 37,616 4 30000 14,468 5 30000 12,056 Total net present value -7,388
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