(Ignore income taxes in this problem.) The Finney Company is reviewing the possi
ID: 2482816 • Letter: #
Question
(Ignore income taxes in this problem.) The Finney Company is reviewing the possibility of remodeling one of its showrooms and buying some new equipment to improve sales operations. The remodeling would cost $136,000 now and the useful life of the project is 12 years. Additional working capital needed immediately for this project would be $34,000; the working capital would be released for use elsewhere at the end of the 12-year period. The equipment and other materials used in the project would have a salvage value of $12,000 in 12 years. Finney's discount rate is 16%.
What would the annual net cash inflows from this project have to be in order to justify investing in remodeling? (Round your 'PV factors' to three decimal places. Round your other intermediate calculations and final answer to the nearest whole dollar.) (Use exhibit11b-1, exhihit11b-2)
a. $17,318
b. $35,020
c. $31,612
d. $31,224
Explanation / Answer
Details Amt $ Discount factor for 12 years @16%=1/1.16^12= 0.1685 Cost Of Remodelling 136,000 Additional working capital 34,000 PV of Additional working capital released after 12 years=34000*0.1685= (5,729) PV of Salvage receivable after 12 yrs=12000*0.1685= (2,022) Net PV of Investments to be recovered in 12 years for a positive NPV = 162,249 PV annuity factor for 12 Years @16% = 5.197 So Annual Cash flow required=162251/5.1971= 31,220 So the closest option is d =$31,224
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