Wallowa Company is considering a long-term investment project called ZIP. ZIP wi

Question

Wallowa Company is considering a long-term investment project called ZIP. ZIP will require an investment of $120,111. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $80,470, and annual cash outflows would increase by $41,420. The company’s required rate of return is 11%. 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 on this project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answer to 0 decimal places, e.g. 125.) Net present value $Entry field with incorrect answer

Explanation / Answer

Amount($) Cumulative discount fcator Annual Cash Inflow Increment 80470 = {1-(1+i)^-n}/i i = 11% Less:Annual Cash outflow Increment 41420 = {1-(1+.11)^-4}/.11 n = 4 = 3.10245 Net Cash inflow 39050 Present value of Cash inflow = Annual Cash inflow*cumulative discount fcator = 39050*3.10245 = 121151 Less: Initial Investment 120111 Net Present Value 1040 Thus, Net Present value on the project is $ 1,040

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