Hamilton Control Systems will invest $77,000 in a temporary project that will ge
ID: 2469512 • Letter: H
Question
Hamilton Control Systems will invest $77,000 in a temporary project that will generate the following cash inflows:
YEAR CASH FLOWS
yEAR 1 21,000
YEAR 2 34,000
YEAR 3 40,000
The firm will also be required to spend $20,000 to close the project at the end of the three years.
Compute the net present value if the cost of capital is 9 percent. (Round the intermediate calculations and final answer to the nearest whole dollar. Negative answer should be indicated by a minus sign.) CALCUATE USING FINNACIAL CALCULATOR
King’s Department Store is considering the purchase of a new machine at a cost of $29,929. The machine will provide $4,400 per year in cash flow for nine years. King’s has a cost of capital is 11 percent.
What is the IRR?
Hamilton Control Systems will invest $77,000 in a temporary project that will generate the following cash inflows:
Explanation / Answer
a. Present Value of Cash flow
PV 21,000, N 1, R 9% = 21000 * 0.9174 = 19,265
PV 34,000, N 2, R 9% = 34000 * 0.8417 = 28,618
PV 40,000, N 3, R 9% = 40000 * 0.7722 = 30,888
Total = $78,771
Present Value of Cash outflow
Initial Outflow = $77,000
PV 20,000, N 3, R 9% = 20000 * 0.7722 = $15,444
Total PV of Cash Outflow = $92,444
Net Present value = 78,771 - 92,444 = -$13,733
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