Horn Company is evaluating an investment project that has a 6-year life and prod
ID: 2581329 • Letter: H
Question
Horn Company is evaluating an investment project that has a 6-year life
and produces the following cash inflows:
Years 1 - 4 ............. $20,000 (each year)
Year 5 .................. $30,000
Year 6 .................. ???????
The initial investment for this project is $98,513 and the net present
value of this project was calculated to be $5,057 at a cost of capital
of 3%.
Calculate the amount of the year 6 cash inflow associated with this
investment project. Do not use decimals in your answer. Ignore the
effects of income taxes.
You will need to use the present value table factors posted below
to answer this question.
Present Value of a Lump-Sum
Rate of interest per period in percent
Periods
3%
5%
8%
9%
10%
12%
14%
15%
16%
20%
1
0.9709
0.9524
0.9259
0.9174
0.9091
0.8929
0.8772
0.8696
0.8621
0.8333
2
0.9426
0.9070
0.8573
0.8417
0.8265
0.7972
0.7695
0.7561
0.7432
0.6944
3
0.9151
0.8638
0.7938
0.7722
0.7513
0.7118
0.6750
0.6575
0.6407
0.5787
4
0.8885
0.8227
0.7350
0.7084
0.6830
0.6355
0.5921
0.5718
0.5523
0.4823
5
0.8626
0.7835
0.6806
0.6499
0.6209
0.5674
0.5194
0.4972
0.4761
0.4019
6
0.8375
0.7462
0.6312
0.5963
0.5645
0.5066
0.4556
0.4323
0.4104
0.3349
7
0.8131
0.7107
0.5835
0.5470
0.5132
0.4523
0.3996
0.3759
0.3538
0.2791
8
0.7894
0.6768
0.5403
0.5019
0.4665
0.4039
0.3506
0.3269
0.3050
0.2326
9
0.7664
0.6446
0.5003
0.4604
0.4241
0.3606
0.3075
0.2843
0.2630
0.1938
10
0.7441
0.6139
0.4630
0.4224
0.3855
0.3220
0.2697
0.2472
0.2267
0.1615
12
0.7014
0.5568
0.3971
0.3555
0.3186
0.2567
0.2076
0.1869
0.1685
0.1122
15
0.6419
0.4810
0.3152
0.2745
0.2394
0.1827
0.1401
0.1229
0.1079
0.0649
16
0.6232
0.4581
0.2919
0.2519
0.2176
0.1631
0.1229
0.1069
0.0930
0.0541
17
0.6050
0.4363
0.2703
0.2311
0.1978
0.1456
0.1078
0.0929
0.0802
0.0471
18
0.5874
0.4155
0.2503
0.2120
0.1799
0.1300
0.0946
0.0808
0.0691
0.0376
19
0.5703
0.3957
0.2317
0.1945
0.1635
0.1161
0.0829
0.0703
0.0596
0.0313
20
0.5537
0.3769
0.2146
0.1784
0.1486
0.1037
0.0728
0.0611
0.0514
0.0261
21
0.5375
0.3589
0.1987
0.1637
0.1351
0.0926
0.0638
0.0531
0.0443
0.0217
24
0.4920
0.3101
0.1577
0.1264
0.1015
0.0659
0.0431
0.0349
0.0284
0.0126
25
0.4776
0.2953
0.1460
0.1160
0.0923
0.0588
0.0378
0.0304
0.0245
0.0105
Present Value of an Annuity
Rate of interest per period in percent
Periods
3%
5%
8%
9%
10%
12%
14%
15%
16%
20%
1
0.9709
0.9524
0.9259
0.9174
0.9091
0.8929
0.8772
0.8696
0.8621
0.8333
2
1.9135
1.8594
1.7833
1.7591
1.7355
1.6901
1.6467
1.6257
1.6052
1.5278
3
2.8286
2.7233
2.5771
2.5313
2.4869
2.4018
2.3216
2.2832
2.2459
2.1065
4
3.7171
3.5460
3.3121
3.2397
3.1699
3.0374
2.9137
2.8550
2.7982
2.5887
5
4.5797
4.3295
3.9927
3.8897
3.7908
3.6048
3.4331
3.3522
3.2743
2.9906
6
5.4172
5.0757
4.6229
4.4859
4.3553
4.1114
3.8887
3.7845
3.6847
3.3255
7
6.2303
5.7864
5.2064
5.0330
4.8684
4.5638
4.2883
4.1604
4.0386
3.6046
8
7.0197
6.4632
5.7466
5.5348
5.3349
4.9676
4.6389
4.4873
4.3436
3.8372
9
7.7861
7.1078
6.2469
5.9953
5.7590
5.3283
4.9464
4.7716
4.6065
4.0310
10
8.5302
7.7217
6.7100
6.4177
6.1446
5.6502
5.2161
5.0188
4.8332
4.1925
12
9.9540
8.8633
7.5361
7.1607
6.8137
6.1944
5.6603
5.4206
5.1971
4.4392
15
11.9379
10.3797
8.5595
8.0607
7.6061
6.8109
6.1422
5.8474
5.5755
4.6755
16
12.5611
10.8378
8.8514
8.3126
7.8237
6.9740
6.2651
5.9542
5.6685
4.7296
17
13.1661
11.2741
9.1216
8.5436
8.0215
7.1196
6.3729
6.0472
5.7487
4.7746
18
13.7535
11.6896
9.3719
8.7556
8.2014
7.2497
6.4674
6.1280
5.8178
4.8122
19
14.3238
12.0853
9.6036
8.9501
8.3649
7.3658
6.5504
6.1982
5.8775
4.8435
20
14.8775
12.4622
9.8182
9.1286
8.5135
7.4694
6.6231
6.2593
5.9288
4.8696
21
15.4150
12.8212
10.0168
9.2922
8.6487
7.5620
6.6870
6.3125
5.9731
4.8913
25
17.4132
14.0939
10.6748
9.8226
9.0770
7.8431
6.8729
6.4641
6.0971
4.9476
Present Value of a Lump-Sum
Explanation / Answer
Net Present Value = Present Value of Cash Inflows - Present Value of Cash Outflows
$ 5,057 = $ 20,000 *0.9709 + $ 20,000 * 0.9426 + $ 20,000 * 0.9151 + $ 20,000 * 0.8885 + $ 30,000 * 0.8626 + $ x * 0.8375 - $ 98,513
or x= $ 4,000
Hence the correct answer is $ 4,000
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