Dunay Corporation is considering investing $790,000 in a project. The life of th

Question

Dunay Corporation is considering investing $790,000 in a project. The life of the project would be 6 years. The project would require additional working capital of $29,000, which would be released for use elsewhere at the end of the project. The annual net cash inflows would be $168,000. The salvage value of the assets used in the project would be $39,000. The company uses a discount rate of 13%. (Ignore income taxes.)

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.)

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

Explanation / Answer

PV of Annual cash inflow = net annual cash flow x PVIFA(6,13%)

                                                   = 168,000 x 3.99755

                                                   = 671,588.36

PV of salvage value and working capital= (salvage value+ working capital) x PVIF (6,13%)

                                     = (39,000 + 29,000) x 0.48032

                                     = 32,661.76

NPV = PV of cash inflows – initial cash outflow

         = (671,588.36 +32,661.76) – (790,000+29000)

         = -114749.88

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