Kinon cameras Ltd (KNN) has identified an investment opportunity which it expect

Question

Kinon cameras Ltd (KNN) has identified an investment opportunity which it expects
will generate annual cash inflows of $6.2 million, $4.6 million, $2.1 million and $1.1
million in the next four years. The initial outlay required is $2.5 million. There are
two types of cash outflows: (i) labour and (ii) raw materials and miscellaneous.
Annual cash outflows for labour in the next four years are forecast to be $3.9 million,
$2.6 million, $1.2 million and $0.3 million. The corresponding cash outflows for raw
materials and miscellaneous are forecast to be $1.5 million, $1.0 million, $0.4 million
and $0.2 million. Assume that all cash flows occur at year-end. KNN estimates that
the required rate of return is 11.5% pa. The net present value is:

a) -$320,709
b) -$229,255
c) $463,457
d) $2,270,745

Explanation / Answer

b) -$229,255

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