Dunay Corporation is considering investing $720,000 in a project. The life of th

Question

Dunay Corporation is considering investing $720,000 in a project. The life of the project would be 11 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 $32,000. The company uses a discount rate of 18%. (Ignore income taxes.)

Click here to view Exhibit 13B-1 and Exhibit 13B-2 to determine the appropriate discount factor(s) using tables.

Required:
Compute the net present value of the project. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Net present value $ _______

Explanation / Answer

npv=-c0+r(t)/(1+i)^t+ salvage value/(1+i)^end year _additional working capital /(1+i)^end year here c0 is the initial investment r(t) is the cash inflow over years t varies from 1,2,3, ...............11 end year=11, i=.18 putting the values in above equation we get npv=-$720,000+$154,000/(1+.18)^t+ $32,000. /(1+.18)^11 _$22,000,/(1+.18)^11 from here you get value of npv.. a project should be undertaken only if you get a positive npv

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