Knable Incorporated manufactures farm equipment. Knable is going to build a new
ID: 2816826 • Letter: K
Question
Knable Incorporated manufactures farm equipment. Knable is going to build a new factory. Based on projections, it is expected that Knable will need to invest 5,700,000 at the beginning of this project. Additional cash flows over the next five years will be as follows:
End of Year 1 2 3 4 5
Cash Flow1,000,000 X 2,000,000 4,000,000 5,000,000
After five years, the factory will be obsolete and not generate any additional cash flows.
This factory based on expected cash flows will generate an internal rate of return of 9.5%.
Calculate the Net Present Value of the expected cash flows at an annual effective rate of 11%.
(Round your answer to the nearest 2 decimal places.)
Explanation / Answer
Calculation of NPV
NPV = Present value of cash inflows - Preent value of cash outflows
= 7,964,000- 5,700,000
= $22,64,000
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Year Cash inflow (a) PVF(11%, 5) (b) Present value (a) x (b) 1 1,000,000 0.901 901,000 2 0 0.812 0 3 2,000,000 0.731 1,462,000 4 4,000,000 0.659 2,636,000 5 5,000,000 0.593 2,965,000 $7,964,000Related Questions
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