38. Pickleball Company is considering the following investment proposal: Initial
ID: 2524365 • Letter: 3
Question
38. Pickleball Company is considering the following investment proposal:
Initial investment:
Depreciable assets (straight-line)
$72,000
Working capital
8,000
Operations (per year for 4 years):
Cash receipts
$50,000
Cash expenditures
22,000
Disinvestment:
Salvage value of equipment
$6,000
Recovery of working capital
8,000
Discount rate:
10 percent
Additional information for interest rate of 10 percent and four time periods:
Present value of $1
0.683
Present value of an annuity of $1
3.170
What is the net present value for the investment?
$ 5,256
$18,322
$57,060
$65,256
Initial investment:
Depreciable assets (straight-line)
$72,000
Working capital
8,000
Operations (per year for 4 years):
Cash receipts
$50,000
Cash expenditures
22,000
Disinvestment:
Salvage value of equipment
$6,000
Recovery of working capital
8,000
Discount rate:
10 percent
Explanation / Answer
Present value of net cash flows 88760 =(50000-22000)*3.17 Present value of salvage and Recovery of working capital 9562 =(6000+8000)*0.683 Total present value of cash flows 98322 Less: Initial investment 80000 =72000+8000 Net present value 18322 Option 2 is correct
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