A company is considering a long term investment project. It will require an inve

Question

A company is considering a long term investment project. It will require an investment of $128,300. Useful life is 4 years. No salvage value. Annual cash inflows would increase $80,300 and annual cash outflows would increase $40,400. The company's required rate of return is 9 percent. Calculate the net present value of this project A company is considering a long term investment project. It will require an investment of $128,300. Useful life is 4 years. No salvage value. Annual cash inflows would increase $80,300 and annual cash outflows would increase $40,400. The company's required rate of return is 9 percent. Calculate the net present value of this project

Explanation / Answer

CALCULATION OF THE NET PRESENT VALUE OF THE PROJECT Year Cash inflow Cash Outflow Net cash Flow PVF @ 9% Present Value 0 $                                   -   $          -1,28,300 $             -1,28,300                         1.0000 $ -1,28,300.00 1 $                          80,300 $                40,400 $                   39,900                         0.9174 $       36,605.50 2 $                          80,300 $                40,400 $                   39,900                         0.8417 $       33,583.03 3 $                          80,300 $                40,400 $                   39,900                         0.7722 $       30,810.12 4 $                          80,300 $                40,400 $                   39,900                         0.7084 $       28,266.17 Total of Present Value = $             964.82 Answer = Net present value of the project = $                     964.82

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