Wally Company is considering an investment opportunity with the following expect

Question

Wally Company is considering an investment opportunity with the following expected net cash inflows: Year 1, $265,000, Year 2, SI 60,000; Year 3. S95.000. The company uses a discount rate of 5% and the initial investment is $370,000. (Click the icon to view Present Value of $1 table) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) Calculate the NPV of the investment. Should the company invest in the project? Why or why not? Use the following table to calculate the net present value of the project. (Enter any factor amounts to three decimal places, XxxX) Net Cash PV Factor Present Years Inflow (1-5%) Value Present value of each year's inflow 1 (n 1) 2 (n 2) 3 (n 3) Total PV of cash inflows 0 Initial investment Net present value of the project Using the NPV as the basis of its decision, Wally Company consider the investment because its NPV is

Explanation / Answer

Using the NPV as the basis of its decision, Wally company Should consider the investment because its NPV is 109,480.

Yeas Net Cash Inflow PV Factor (i=5%) Present value Present value of each year's inflow : 1 (n=1) 265,000 0.952 252,280 2 (n=2) 160,000 0.907 145,120 3 (n=3) 95,000 0.864 82,080 Total Pv of cash inflows 479,480 0 Initial investment 370,000 Net present value of the project 109,480

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