Thunder Corporation, an amusement park, is considering a capital investment in a

Question

Thunder Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $193,377 and have an estimated useful life of 11 years. It will be sold for $66,800 at that time. (Amusement parks need to rotate exhibits to keep people interested.) It is expected to increase net annual cash flows by $25,600. The company’s borrowing rate is 8%. Its cost of capital is 10%. Click here to view PV table.

Calculate the net present value of this project to the company and determine whether the project is acceptable. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to 0 decimal places, e.g. 125.)

Net present value = $

The project _____ acceptable?

Explanation / Answer

cost of project 193377 year cash inflow present value@10% present value of cash flow 1 25600 0.909091 23272.73 2 25600 0.826446 21157.02 3 25600 0.751315 19233.66 4 25600 0.683013 17485.14 5 25600 0.620921 15895.59 6 25600 0.564474 14450.53 7 25600 0.513158 13136.85 8 25600 0.466507 11942.59 9 25600 0.424098 10856.9 10 25600 0.385543 9869.908 11 25600 0.350494 8972.644 66800 0.350494 23412.99 present value of cash flow 189686.6 cash out flow after adjustment of flotation cost 193377 npv -3690.45

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