Magic Corporation, an amusement park, is considering a capital investment in a n

Question

Magic Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $139,014 and have an estimated useful life of 5 years. It will be sold for $66,900 at that time. (Amusement parks need to rotate exhibits to keep people interested.) It is expected to increase net annual cash flows by $26,300. The company's borrowing rate is 8%. Its cost of capital is 10%. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Calculate the net present value of this project to the company and determine whether the project is acceptable. (I f the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value to O decimal places, e.g. 125.) Net present value The project acceptable.

Explanation / Answer

The Value of PVIFA 5 years, 10% = 3.791 and PVIF 5 years, 10% = 0.621

The Presenet Value of Cash flows for 5 years = 26,300 * 3.791 = $ 99,697.69

The Prensent Value at the end of 5 years = 66,900 * 0.621 = $ 41,539.63

Total Cash inflow = $ 141,237.32 and Total Cash Outflow = $ 139,014

The NPV of the Capital Investment = $ 141,237 - $ 139,014 = $ 2,223

The Project accetable.

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

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