BE12-6 Quillen Company is performing a post-audit of a project completed one yea

Question

BE12-6 Quillen Company is performing a post-audit of a project completed one year ago. The initial estimates were the project would cost $250,000, would have a useful life of 9 years, zero salvage value, and would result in net annual cash flows of $46,000 per year. Now that the investment has been in operation for 1 year revised figures indicate that it actually costs $260,000, will have a useful life of 11 years, and will produce net annual cash flows of $39,000 per year. Evaluate the success of the project. Assume a discount rate of 10%.

Explanation / Answer

Net Present Value for initial estimtes = -250000 + 46000*[P|A, 10%, 9] = $14,915

Net Present Value for revised estimtes = -260000 + 39000*[P|A, 10%, 11] = -$6,692

So, there is a loss in the project.

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