Wayne Company is considering a long-term investment project called ZIP. ZIP will
ID: 2498677 • Letter: W
Question
Wayne Company is considering a long-term investment project called ZIP. ZIP will require an investment of $132,085. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $80,500, and annual cash outflows would increase by $38,500. The company’s required rate of return is 10%. Click here to view PV table.
Calculate the net present value on this project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answer to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Net present value
Whether this project should be accepted?
The project should be
accepted
rejected
.
Explanation / Answer
Statement showing Cash flows Particulars Time PVf@10% Amount PV Cash Outflows - 1.00 (132,085.00) (132,085.00) PV of Cash outflows (132,085.00) Net Cash inflows 1.00 0.9091 42,000.00 38,181.82 Net Cash inflows 2.00 0.8264 42,000.00 34,710.74 Net Cash inflows 3.00 0.7513 42,000.00 31,555.22 Net Cash inflows 4.00 0.6830 42,000.00 28,686.57 PV of Cash Inflows 133,134.35 NPV 1,049.35 Project should be accepted since NPV is positive Statement showing computations Particulars Amount Incremental Cash inflows 80,500.00 Incremental Cash outflows 38,500.00 Net Incremental Cash inflows 42,000.00
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