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 $123,607. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $80,900, and annual cash outflows would increase by $40,520. 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.)

Whether this project should be accepted?

Net present value $

Explanation / Answer

NPV = 1,699.931 $

Since the NPV is positive project should be accepted

e

Year incremental cash inflows incremental cash outflows net cash inflows Cumulative present value factor@11% present value of cash inflows 1-4 80,900 40,520 40,380 3.10245 125276.931 Less: initial investment (123607) Net present value 1669.931

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