Davis Chili Company is considering an investment of $18,000, which produces the

Question

Davis Chili Company is considering an investment of $18,000, which produces the following inflows:

Year

Cash Flow

1

$

10,000

2

9,000

3

6,000

Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

a.

Determine the net present value of the project based on a 10 percent discount rate. (Do not round intermediate calculations and round your answer to 2 decimal places.)

  

  Net present value

$   

b.

Determine the net present value of the project based on a 19 percent discount rate. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)

  

  Net present value

$   

Davis Chili Company is considering an investment of $18,000, which produces the following inflows:

Explanation / Answer

a. Cost of capital = 10%

Using financial calulator, Enter all the cash flows with interest rate, I/Yr = 10%, press NPV key = 3036.81.

b. Cost of capital = 19%

Using financial calulator, Enter all the cash flows with interest rate, I/Yr = 10%, press NPV key = 319.34

Calculation of NPV Years Cash Flows Discount Factor (10%) PV of Cash flows 0 -18000 1 -18000.00 1 10000 0.909091 9090.91 2 9000 0.826446 7438.02 3 6000 0.751315 4507.89 NPV 3036.81

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