Chapter 11 Quz Question 7(or Dunay Corporation is considering investing $825,000
ID: 341769 • Letter: C
Question
Chapter 11 Quz Question 7(or Dunay Corporation is considering investing $825,000 in a project. The life of the project would be 10 years The project would require additional working capital of $22,000, which would be released for use elsewhere at the end of the project. The annual net cash inflows would be $154,000. The salvage value of the assets used in the project would be S32.000 The company uses a discount rate or 15%. (ignore ncome taxes) cack here to view Exhitit 11B-1 and Exhibit 118-2 to determine the approptiate discount factoris) using tables Required Compute the net present value of the project. (Negative Round discount factorts) to 3 decimal places, intermediate and final answers to amount.) amount should be indicated by a minus sign. O Type here to search F8 F9 F10 5 6 7 8. 9Explanation / Answer
For year = 0 , we have negative cash flows of 825000 direct investment and 22000 for working capital. Total investment is represented as - 847,000.
For year = 10, regular annual cash flow 154000 + 32000 being salvage value received and 22000 is release of working capital . Thus total Net cash flow in the final year = 154000 + 32000 + 22000 = 208000
DF = Discounting factors ........ these are obtained from tables (or) can be calculated on a calculator as ........
1/1.15 = .... will give Year - 1 value........... then continue to press "=" on your calculator to get remaining years in order. Values are rounded to 3 decimals as specified in the question.
CALCULATION OF NPV
Year Net CF DF PV 0 -847000 1 -847000 1 154000 0.87 133980 2 154000 0.757 116578 3 154000 0.658 101332 4 154000 0.572 88088 5 154000 0.497 76538 6 154000 0.432 66528 7 154000 0.376 57904 8 154000 0.327 50358 9 154000 0.284 43736 10 208000 0.247 51376 NPV = -60582Related Questions
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