hunder Corporation, an amusement park, is considering a capital investment in a
ID: 2591390 • Letter: H
Question
hunder Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $204,212 and have an estimated useful life of 11 years. It will be sold for $64,700 at that time. (Amusement parks need to rotate exhibits to keep people interested.) It is expected to increase net annual cash flows by $27,400. The company’s borrowing rate is 8%. Its cost of capital is 10%. Click here to view PV table.
Calculate the net present value of this project to the company and determine whether the project is acceptable. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to 0 decimal places, e.g. 125.)
Explanation / Answer
Calculation of net present value of the project
Net Present value ($3,571)
Since the projct NPV is negative thus the project is not acceptable
Particulars Working Amount ($) Capital Investment $204,212 * 1 (204,212) Present value of net annual cash flows : PVIFA10 % , 11 years *net annual cash flows $27,400 * 6.49506 177,964.644 Terninal value : PVIF10 % , 11 years *Salvage value $64,700 * 0.35049 22,676.703 Net Present value (3,570.653) or (3,571)Related Questions
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