Troy Batkin, the chief executive officer of Batkin Corporation, has assembled hi

Question

Troy Batkin, the chief executive officer of Batkin Corporation, has assembled his top advisers to evaluate an investment opportunity. The advisers expect the company to pay $404,000 cash at the beginning of the investment and the cash inflow for each of the following four years to be the following. Year 1 Year 2 Year 3 Year 4 $90,000 $102,000 $129,000 $190,000 Mr. Batkin agrees with his advisers that the company should use the discount rate (required rate of return) of 14 percent to compute net present value to evaluate the viability of the proposed project. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

a-1. Compute the net present value of the proposed project

a-2. Should Mr. Batkin approve the project?

Explanation / Answer

a - 1:

a-2. : Mr. Batkin should not approve the project as having a negative NPV of ($47077).

year cash flow discount rate 14% present value 0 ($404000) 1 ($404000) 1 $90,000 0.877 78930 2 102000 0.769 78438 3 129000 0.675 87075 4 190000 0.592 112480 Net present value ($47,077)

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