I am very stuck on this problem Wayne Company is considering a long-term investm

Question

I am very stuck on this problem

Wayne Company is considering a long-term investment project called ZIP. ZIP will require an investment of Dollar 122,228. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by Dollar 79,800, and annual cash outflows would increase by Dollar 39,900. The company's required rate of return is 11 Percentage. 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

Explanation / Answer

Net present value (NPV):

Net annual cash flows = Cash inflows - Cash outfows

= $79,800 - $39,900

= $39,900

Therefore, the net present value is $1,559.58 or $1,560.

Since the net present value is positive, the project should be acceptable.

Year Cash flows ($) (A) Presnet value factor at 11% (1/1.11=) (B) Present value of cash flows ( C = A*B) 0 -122,228 1 -122228 1 39,900 0.900900901 35945.95 2 39,900 0.811622433 32383.74 3 39,900 0.731191381 29174.54 4 39,900 0.658730974 26283.37 NPV 1559.58

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