Troy Batkin, the chief executive officer of Batkin Corporation, has assembled hi

Question

Troy Batkin, the chief executive officer of Batkin Corporation, has assembled his top advisers to evaluate an investment opportunity. The advisers expect the company to pay $401,000 cash at the beginning of the investment and the cash inflow for each of the following four years to be the following.

     Mr. Batkin agrees with his advisers that the company should use the discount rate (required rate of return) of 14 percent to compute net present value to evaluate the viability of the proposed project. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Compute the net present value of the proposed project. (Negative amount should be indicated by a minus sign. Round intermediate computation of dollar amounts to the nearest whole dollars.)

Troy Batkin, the chief executive officer of Batkin Corporation, has assembled his top advisers to evaluate an investment opportunity. The advisers expect the company to pay $401,000 cash at the beginning of the investment and the cash inflow for each of the following four years to be the following.

Explanation / Answer

note: amount in bracket are negative amount.

a-2

He should reject the project since the NPV is negative value.

Year Cash Flow PV Factor = 1/(1+R)^n Present Value = Cash Flow * PV factor 0 ($401,000) 1.000000 ($401,000) 1 $94,000 0.877193 $82,456 2 $98,000 0.769468 $75,408 3 $122,000 0.674972 $82,347 4 $194,000 0.592080 $114,864 Sum of Present Value of the Cash Flows $355,074 Less: Amount invested ($401,000) Net Present value = Total PV - Intial Investment ($45,926)

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