CALCULATOR FULL SCREEN PRINTER VERSION BACK Brief Exercise 24-3 Thunder Corporat

Question

CALCULATOR FULL SCREEN PRINTER VERSION BACK Brief Exercise 24-3 Thunder Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $196,499 and have an estimated useful life of 10 years. It will be old for $61,700 at that time. (Amusement parks need to rotate exhibits to keep people interested.) It is expected to increase net annual cash fows by $27,400. The company's borrowing rate is 8%. Its st of capital is 10%. CickheretoyenPytabie. Calculate the net present value of this project to the company and determine whether the project is acceptable. (r the net present value is negative, use either a negative sigrn preceding the number eg-45 or parentheses eg (45). For calculation purposes, use S decimal places as displayed in the factor table provided. Round present vale answer to O decimal places, e.g. 125.) Net present value s The projectacceptable. lick if you would like to Show Work for this question: Open Show Work

Explanation / Answer

Step-1:Present Value of annual net cash flows Present Value = Annual Cash flows * Cumulative discount factor = $     27,400 x       6.14457 = $ 1,68,361 Cumulative discount factor = (1-(1+i)^-n)/i Where, = (1-(1+0.10)^-10)/0.10 i = 0.10 =       6.14457 n = 10 Step-2:Present Value of salvage value Present Value = Salvage Value * Discount Factor = $     61,700 x (1.10^-10) = $     23,788 Step-3:Calculating Net Present Value Present Value of annual Cash flows $ 1,68,361 Present Value of Salvage $     23,788 Total Present value of cash inflows $ 1,92,149 Less:Initial Investment $ 1,96,499 Net Present Value $     -4,350 Now, Net Present Value $   -4,350 The Project is Not Acceptable

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