equipment The Mantua Motors is evaluating a capital investment opportunity. This

Question

equipment The Mantua Motors is evaluating a capital investment opportunity. This project would require an initial investment of $43,000 to purchase equipment. The equipment will have a residual value at the end of its life of $5,000. The useful life of the equipment is 5 years. The new project is expected to generate additional net cash inflows of $21,000 per year for each of the five years. Mantua Motors required rate of return is 12%, The net pre sen value of this proiect closest to (The present value for this scenario is 0.567. The present value of annuity for this scenario is 3.605.) required rate ofreumnt year The vale or hi scanario O A. $2,774. OB. $35,540. O C. $54,159. O D. $32,705

Explanation / Answer

Present value of inflows=$21000*Present value of annuity factor(12%,5)+$5000*Present value of discounting factor(12%,5)

=$21000*3.605+$5000*0.567

=$78540

NPV=Present value of inflows-Present value of outflows

=$78540-$43000

=$35540(Approx_.

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