Do It Review 26-2 Wayne Company is considering a long-term investment project ca

Question

Do It Review 26-2 Wayne Company is considering a long-term investment project called ZIP. ZIP will require an investment of $132,085. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $80,500, and annual cash out o s would increase by 38 500. The companys equi e ate of re r is 10% h e to i PV table. Calculate the net present value on this project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answer to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value Whether this project should be accepted? The project should be

Explanation / Answer

Annual Cash FLow = Increase in Cash Flow - Increase in Cash outflow

=80500-38500

= 42000

As NPV is positive offer should be accepted

Year Cash Flow PVF at 10% Present Value 0 -132085 1 -132085 1 42000 0.90909 38181.82 2 42000 0.82645 34710.74 3 42000 0.75131 31555.22 4 42000 0.68301 28686.57 NPV 1049.349

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