Thunder Corporation, an amusement park, is considering a capital investment in a
ID: 2516534 • Letter: T
Question
Thunder Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $166,169 and have an estimated useful life of 9 years. It will be sold for $68,300 at that time. (Amusement parks need to rotate exhibits to keep people interested.) It is expected to increase net annual cash flows by $23,100. The company’s borrowing rate is 8%. Its cost of capital is 10%. Click here to view PV table.
Calculate the net present value of this project to the company and determine whether the project is acceptable. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to 0 decimal places, e.g. 125.)
Explanation / Answer
CASH FLOW
YEAR
PV AT 10%
NPV
(166169)
0
1
(166169)
23100
1
0.909090909
21000
23100
2
0.826446281
19090.90909
23100
3
0.751314801
17355.3719
23100
4
0.683013455
15777.61082
23100
5
0.620921323
14343.28256
23100
6
0.56447393
13039.34778
23100
7
0.513158118
11853.95253
23100
8
0.46650738
10776.32048
23100
9
0.424097618
9796.654984
68300
9
0.424097618
28965.86733
Net Present Value
(4169.682509)
Project is not acceptable since NPV is Negative
.
CASH FLOW
YEAR
PV AT 10%
NPV
(166169)
0
1
(166169)
23100
1
0.909090909
21000
23100
2
0.826446281
19090.90909
23100
3
0.751314801
17355.3719
23100
4
0.683013455
15777.61082
23100
5
0.620921323
14343.28256
23100
6
0.56447393
13039.34778
23100
7
0.513158118
11853.95253
23100
8
0.46650738
10776.32048
23100
9
0.424097618
9796.654984
68300
9
0.424097618
28965.86733
Net Present Value
(4169.682509)
Project is not acceptable since NPV is Negative
.
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