Norton Company is considering a project that will require an initial investment

Question

Norton Company is considering a project that will require an initial investment of $750,000 and will return $200,000 each year for 5- years.

Below is a table for the present value of $1 at compound interest.

Year 990 0.917 0.842 0.772 0.708 0.650 Year 990 0.596 0.547 0.502 0.460 0.422 4 10 Below is a table for the present value of an annuity of $1 at compound interest. Year 990 0.917 1.759 2.531 3.240 3.890 Year 990 4.486 5.033 5.535 5.995 6.418 4 10 Required: If taxes are ignored and the required rate of return is 9%, what is the project's net present value? Based on this analysis, should Norton Company proceed with the project? Yes No

Explanation / Answer

Net present value = Present value of cash inflow-Present value of cash outflow

                              = (200000*3.89)-(750000*1)

Net present value = 28000

Yes, Norton company should proceed with the project.

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