Juliar Inc. has provided the following data concerning a proposed investment pro
ID: 2473326 • Letter: J
Question
Juliar Inc. has provided the following data concerning a proposed investment project:
Click here to view Exhibit 13B-1 and Exhibit 13B-2 to determine the appropriate discount factor(s) using tables.
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.)
Initial investment $ 320,000 Life of the project 14 years Annual net cash inflows $ 49,000 Salvage value $ 39,000 The company uses a discount rate of 11%.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.)
Explanation / Answer
Answer:
Initial Investment = $320,000
Life of the project = 14 years
Annual cash flows = $49,000
Salvage value = $39,000
Discount rate - 11%
Present value annual factor for 14 years @11% = [ 1 - { 1 / (1+r)^n } ] / r
= [ 1 { 1 / (1+0.11)^14 } ] / 0.11 = 6.982
Present value factor for 14th year @11% = 0.232
Therefore, Present value of cash inflows = 49,000 (6.982) + 39,000 (0.232) = $351,166
Net Present value of the project = Present value of the cash inflows - Initial Cost
= $351,166 - $320,000 = $31,166
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