The Quick-Start Company has the following pattern of potential cash flows with i

Question

The Quick-Start Company has the following pattern of potential cash flows with its planned investment in
a new cold weather starting system for fuel injected cars.

The Quick-Start Company has the following pattern of potential cash flows with its planned investment in a new cold weather starting system for fuel injected cars. If the company has a discount rate of 17%, what is the value closest to time 1 net present value? A. $48.6 million B. $80.9 million C. $108.2 million D. $181.4 million E. None of these

Explanation / Answer

Ans is A $48.6 Million

Particulars Time PVF Amount PV Cash Outlows- Purchase                               1.00                1.0000 (100,000,000.00) (100,000,000.00) PV of Cash Outflows (100,000,000.00) Cash Inflows 2                0.8547        66,000,000.00        56,410,256.41 Cash Inflows 3                     0.73        66,000,000.00        48,213,894.37 Cash Inflows 4                0.6244        66,000,000.00        41,208,456.72 Cash Inflows 5                     0.53        66,000,000.00        35,220,903.18 PV of Cash Inflows      181,053,510.69 NPV        81,053,510.69 Possibility of Test run a Success                               0.60 NPV            81,053,510.69 Proportionate NPV            48,632,106.41 Note: Test cost is sunk Cost

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