Do It Review 24-2 Wayne Company is considering a long-term investment project ca

Question

Do It Review 24-2 Wayne Company is considering a long-term investment project called ZIP. ZIP will require an investment of $129,639. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $80,100, and annual cash outflows would increase by $40,600. The company's required rate of return is 8%. Click here e. 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 value Whether this project should be accepted? The project should be Click if you would like to Show Work for this question: Open Show Work

Explanation / Answer

Step-1:Annual Net Cash inflows Annual Cash Inflows $ 80,100 Less:Annual Cash outflows $ 40,600 Net Annual Cash inflows $ 39,500 Step-2:Present value of annual cash inflows Present Value = Annual net Cash inflows *Cumulative Discount factor = $     39,500 x       3.31213 = $ 1,30,829 Cumulative discount factor = (1-(1+i)^-n)/i Where, = (1-(1+0.08)^-4)/0.08 i =           0.08 =    3.31213 n = 4 Step-3:Net Present Value Present value of Net Cash inflows $ 1,30,829 Less:Initial Investent $ 1,29,639 Net Present Value $       1,190 Thus, Net Present Value $    1,190 The Project Should be accepted.

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