4. (TCO 3 and 4) What is the net present value of a project with the following c

Question

4. (TCO 3 and 4) What is the net present value of a project with the following cash flows, if the discount rate is 10 percent?

Year 0 1 2 3 4
Cash flow -$32,000 $9,000 $10,000 $15,200 $7,800 (Points : 4)
$1,085.25
$1,193.77
$3,498.28
$4,102.86
$4,513.15


5. (TCO 4) Howard Company is considering a new project that will require an initial cash investment of $575,000. The project will produce no cash flows for the first three years. The projected cash flows for years 4 through 8 are $73,000, $112,000, $124,000, $136,000, and $145,000, respectively. How long will it take the firm to recover its initial investment in this project? (Points : 4)
5.81 years
6.05 years
6.96 years
7.90 years
This project never pays back

Explanation / Answer

4 NPV =-$32,000 +$9,000/1.1 + $10,000/1.1^2+ $15,200/1.1^3+ $7,800/1.1^4 = 1193.77 $1,193.77 5. Payback period = 3+ 4+ ($575,000-(73000+112000+124000+136000))/145000 = 7.90 years 7.90 years

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