ne File Edit View History Bookmarks People Window Help :3 Assignments. ACG 2071-

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ne File Edit View History Bookmarks People Window Help :3 Assignments. ACG 2071-CRN xy D Chapter Quiz 3 ezto.mheducation.com/hm.tpx Econnect ACCOUNTING ulz 3 Question 34 (of 40) The Finney Company is reviewing the possibility of remodeling one of its showrooms and buying some new equipment to improve sales operations. The remodeling would cost $180,000 now and the useful life of the project is 12 years. Additional working capital needed immediately for this project would be $30,000; the working capital would be released for use elsewhere at the end of the 12-year period. The equipment and other materials used in the project would have a salvage value of $15.000 in 12 years. Finney's discount rate is 11%. (Ignore income taxes.) Click here to view Exhibit 138-1 and Exhibit 138-2 to determine the appropriate discount factor(s) using tables remodelling? (Round discount factors) to 3 decimal places, intermediate and final answers to the nearest dollar amount.) O $17.354 O $30,365 O $37049 s15702

Explanation / Answer

In order to accept the project NPV should be 0 or positive .So present value of cash inflow should equal or more than initial cost.that is

Initial investment =remodeling cost+working capital

           = 180000+30000

           = 210000

Terminal value =salvage+working capital realized

           = 15000+30000

          = 45000

Present value =[PVA 11%,12*net cash flow ]+[PVF11%,12*Terminal value]

210000 = [6.492* net cash flow]+[.286*45000]

210000 = 6.492 NCF + 12870

    6.492 NCF = 210000-12870

    NCF = 197130/6.492

             = 30365

CORRECT OPTION IS "b"

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