Stomberg Corporation has provided the following data concerning an investment pr

Question

Stomberg Corporation has provided the following data concerning an investment project that it is considering:

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided.

The life of the project is 4 years. The company’s discount rate is 10%. The net present value of the project is closest to:

Multiple Choice

$20,420

$184,000

$29,982

$579,982

Initial investment $ 550,000 Annual cash flow $ 180,000 per year Salvage value at the end of the project 14,000

Explanation / Answer

Present value of inflows=$180000*Present value of annuity factor(10%,4)+$14000*Present value of discounting factor(10%,4)

=(180000*3.169)+(14000*0.683)

=$579982

NPV=Present value of inflows-Present value of outflows

=$579982-$550,000

=$29982

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