Could someone please help me with this problem? Quillen Company is performing a

Question

Could someone please help me with this problem?

Quillen Company is performing a post-audit of a project completed one year ago.

The initial estimates were that the project would cost $250,000, would have a useful life of 9 years, zero salvage value, and would result in net annual cash flows of $46,000 per year. Now that the investment has been in operation for 1 year, revised figures indicate that it actually cost $260,000, will have a useful life of 11 years, and will produce net annual cash flows of $39,000 per year. Evaluate the success of the project.

Assume a discount rate of 10%.  

Explanation / Answer

Calculating Net Present Value of project in two cases:

NPV1 = -250000+46000*(P/A, 10%, 9) = -250000+ 46000*5.759 = $14,914

NPV2 = -260000+ 39000*(P/A, 10%, 11) = -260000+ 39000*6.495= - $6,695

Since NPV2 is less than NPV1 and also NPV2 is negative,

So project wasn't successful.

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