Dunay Corporation is considering investing $925,000 in a project. The life of th

Question

Dunay Corporation is considering investing $925,000 in a project. The life of the project would be 7 years. The project would require additional working capital of $42,000, which would be released for use elsewhere at the end of the project. The annual net cash inflows would be $194,000. The salvage value of the assets used in the project would be $52,000. The company uses a discount rate of 12%. (Ignore income taxes.)

Compute the net present value

use tables to assist
http://lectures.mhhe.com/connect/0078111005/Exhibit/Exhibit%2013B-1.jpg

http://lectures.mhhe.com/connect/0078111005/Exhibit/Exhibit%2013B-2.jpg

Explanation / Answer

investment = 925000 additional charges of capital = 42000 total outflow at zero year = 967000 inflow for 7 years =194000 PV of $1 annuity for next 7 years nad rate 12% = (using tables) = 4.564 Thus PV of inlfows = 194000*4.564 = 885416 PV with discount rate 12 of lump sum for 7 year is 0.452 (using tables) Salvages give 52000, its PV = 53000* 0.452 = 23956 PV ot total inflow = 909372 NPV = PV of inlfow - today's investment = 909372 - 967000 = -57628

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