Valotta Corporation has provided the following data concerning an investment pro
ID: 336499 • Letter: V
Question
Valotta Corporation has provided the following data concerning an investment project that it is considering:
The working capital would be released for use elsewhere at the end of the project.
Initial investment $690,000
Working capital $70,000
Annual cash flow $283,000 per year
Salvage value at the end of the project $21,000
Expected life of the project 4 years
Discount rate 11%
Required:
Calculate the net present value of the project and decide whether or not the company should make this investment. Please show all work using the format presented in class.
Explanation / Answer
Investment Year 0 Year 1 Year 2 Year 3 Year 4 NPV Initial investment ($6,90,000) Working Capital Required ($70,000) Total Cash outflow ($7,60,000) Annual Net Cash receipts 2,83,000 2,83,000 2,83,000 2,83,000 Working Capital Released $70,000 Salvage value at the end of project $21,000 Total Cash inflow $0 $2,83,000 $2,83,000 $2,83,000 $3,74,000 Net Cash Flow ($7,60,000) $2,83,000 $2,83,000 $2,83,000 $3,74,000 Life 4 years Required Rate of Return is 11% Present Value factor 1 0.901 0.812 0.731 0.659 Present Value of Cash outflow -7,60,000 Present Value of Cash inflow 2,54,983 2,29,796 2,06,873 2,46,466 Net Present value -7,60,000 2,54,983 2,29,796 2,06,873 2,46,466 1,78,118
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.