Do It Review 26-2 Your answer is partially correct. Try again Wayne Company is c

Question

Do It Review 26-2 Your answer is partially correct. Try again Wayne Company is considering a long-term investment project called ZIP. ZIP will require an investment of $122,050. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $80,500, and annual cash outflows would increase by $39,800. The company's required rate of return is 12%. Clickhere to view Pytable 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 val Whether this project should be accepted? The project should be a epted

Explanation / Answer

Answer

Net Present cash inflow per year = Increase in Cash Inflow – Increase in Cash Outflow

= $80,500 - $39,800

Net Present cash inflow per year = $40,700

Present Value Annuity Factor (PVAF) @12% for 4 Years = 3.03734934658

Present Value of Cash Inflow = Net Present Cash Inflow per year * PVAF @12% for 4 Years

= $40,700 * 3.03734934658

= 123,620.118405

Net Present Value = Present Value of Cash Inflow - Initial Cash Outflow

= 123,620.118405 – 122,050

Net Present Value = $1,570.118405

The project should be acceted as NPV is positive.

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