Star City is considering an investment in the community center that is expected

Question

Star City is considering an investment in the community center that is expected to return the following cash flows: This schedule includes all cash inflows from the project, which will also require an immediate $200,000 cash outlay. The city is tax-exempt; therefore, taxes need not be considered. Required: What is the net present value of the project if the appropriate discount rate is 20 percent? (Round present value factor for each year to three decimal places. Negative amount should be indicated by a minus sign.) What is the net present value of the project if the appropriate discount rate is 12 percent? (Round present value factor for each year to three decimal places. Negative amount should be indicated by a minus sign.)

Explanation / Answer

DF = Discounting Factor, DCF = Discounted Cash Flow

(a) NPV of the Project if Discount rate is 20% Year DF at 20% Cash Flow =CF DCF (= CF x DF) 1 Cash Inflow 0.8333 $      20,000.00 $          16,666.67 2 Cash Inflow 0.6944 $      50,000.00 $          34,722.22 3 Cash Inflow 0.5787 $      80,000.00 $          46,296.30 4 Cash Inflow 0.4823 $      80,000.00 $          38,580.25 5 Cash Inflow 0.4019 $    100,000.00 $          40,187.76 (i) Sum of PV of Cash Inflows $        176,453.19 (ii) Cash Ouley $ 200,000.00 (iii )NPV (i - ii) ($) (-) 23,546.81

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