A corporation s considering a capital investment. The exhibit would cost $221,47
ID: 2528417 • Letter: A
Question
A corporation s considering a capital investment. The exhibit would cost $221,476 and would have a 12 year useful life. Salvage is $61,600. It would increase cash flows by $29,100. The company's borrowing rate is 8 percent. The cost of capital is 10 percent what is the net present value? A corporation s considering a capital investment. The exhibit would cost $221,476 and would have a 12 year useful life. Salvage is $61,600. It would increase cash flows by $29,100. The company's borrowing rate is 8 percent. The cost of capital is 10 percent what is the net present value?Explanation / Answer
Year
Cash Flow (C)
Calculation of PV Factor
PV Factor @ 10 % (F)
PV(=C x F)
0
($221,476)
1/(1+0.1)^0
1
($221,476.0000)
1
$ 29,100
1/(1+0.1)^1
0.909090909
$26,454.5455
2
$ 29,100
1/(1+0.1)^2
0.826446281
$24,049.5868
3
$ 29,100
1/(1+0.1)^3
0.751314801
$21,863.2607
4
$ 29,100
1/(1+0.1)^4
0.683013455
$19,875.6916
5
$ 29,100
1/(1+0.1)^5
0.620921323
$18,068.8105
6
$ 29,100
1/(1+0.1)^6
0.56447393
$16,426.1914
7
$ 29,100
1/(1+0.1)^7
0.513158118
$14,932.9012
8
$ 29,100
1/(1+0.1)^8
0.46650738
$13,575.3648
9
$ 29,100
1/(1+0.1)^9
0.424097618
$12,341.2407
10
$ 29,100
1/(1+0.1)^10
0.385543289
$11,219.3097
11
$ 29,100
1/(1+0.1)^11
0.350493899
$10,199.3725
12
$ 90,700
1/(1+0.1)^12
0.318630818
$28,899.8152
NPV
($3,569.9096)
Cash flow in year 12th = Annual cash flow + salvage value = $ 29,700 + $ 61,000 = $ 90.700
Net present value of investment is - $ 3,569.91
Year
Cash Flow (C)
Calculation of PV Factor
PV Factor @ 10 % (F)
PV(=C x F)
0
($221,476)
1/(1+0.1)^0
1
($221,476.0000)
1
$ 29,100
1/(1+0.1)^1
0.909090909
$26,454.5455
2
$ 29,100
1/(1+0.1)^2
0.826446281
$24,049.5868
3
$ 29,100
1/(1+0.1)^3
0.751314801
$21,863.2607
4
$ 29,100
1/(1+0.1)^4
0.683013455
$19,875.6916
5
$ 29,100
1/(1+0.1)^5
0.620921323
$18,068.8105
6
$ 29,100
1/(1+0.1)^6
0.56447393
$16,426.1914
7
$ 29,100
1/(1+0.1)^7
0.513158118
$14,932.9012
8
$ 29,100
1/(1+0.1)^8
0.46650738
$13,575.3648
9
$ 29,100
1/(1+0.1)^9
0.424097618
$12,341.2407
10
$ 29,100
1/(1+0.1)^10
0.385543289
$11,219.3097
11
$ 29,100
1/(1+0.1)^11
0.350493899
$10,199.3725
12
$ 90,700
1/(1+0.1)^12
0.318630818
$28,899.8152
NPV
($3,569.9096)
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.