Problem 9.3 XYour answer is incorrect. Try again Crescent Industries management

Question

Problem 9.3 XYour answer is incorrect. Try again Crescent Industries management is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses an 18 percent discount rate for project. Year Cash Flow 0 $3,029,000 $836,610 $874,500 3 $1,100,000 4 $%1,373,260 5 $1,589,400 What is the NPV of this project? (Enter negative amounts using negative sign e.g.-45.25. Do not round discount factors. Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25.) The NPV is 314150.00 Should management go ahead with the project? The firm should relectv the project

Explanation / Answer

a. NPV $           3,80,591 Working: NPV is calculated as follows: Year Cash flows Discount factor Present Value a b c=1.18^-a d=b*c 0 $       -30,29,000    1.00000 $       -30,29,000 1 $           8,36,610    0.84746 $           7,08,992 2 $           8,74,500    0.71818 $           6,28,052 3 $         11,00,000    0.60863 $           6,69,494 4 $         13,73,260    0.51579 $           7,08,312 5 $         15,89,400    0.43711 $           6,94,741 NPV $           3,80,591 b. The firm should accept the project. Since, NPV is positive, It means by accepting project, Cash of $ 380,591 will be created.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.