Davis Chili Company is considering an investment of $60,000, which produces the

Question

Davis Chili Company is considering an investment of $60,000, which produces the following inflows: Year Cash Flow 1 $ 27,000 2 26,000 3 23,000 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 zero percent discount rate. Net present value $ b. 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 $ c. Determine the net present value of the project based on a 25 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 $

Explanation / Answer

a. Net present value of the project $      16,000.00 b. Net present value of the project $         3,313.30 c. Net present value of the project $       -9,984.00 Working: 0% 10% 25% Year Cash flows Discount factor Present Value Cash flows Discount factor Present Value Cash flows Discount factor Present Value 0 $      -60,000         1.000 $     -60,000.00 $-60,000         1.000 $     -60,000.00 $-60,000         1.000 $     -60,000.00 1 $        27,000         1.000 $      27,000.00 $ 27,000         0.909 $      24,545.45 $ 27,000         0.800 $      21,600.00 2 $        26,000         1.000 $      26,000.00 $ 26,000         0.826 $      21,487.60 $ 26,000         0.640 $      16,640.00 3 $        23,000         1.000 $      23,000.00 $ 23,000         0.751 $      17,280.24 $ 23,000         0.512 $      11,776.00 Net Present Value $      16,000.00 $         3,313.30 $       -9,984.00

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