Dunay Corporation is considering investing $890,000 in a project. The life of th

Question

Dunay Corporation is considering investing $890,000 in a project. The life of the project would be 7 years. The project would require additional working capital of $39,000, which would be released for use elsewhere at the end of the project. The annual net cash inflows would be $188,000. The salvage value of the assets used in the project would be $49,000. The company uses a discount rate of 12%. (Ignore income taxes.)

Dunay Corporation is considering investing $890,000 in a project. The life of the project would be 7 years. The project would require additional working capital of $39,000, which would be released for use elsewhere at the end of the project. The annual net cash inflows would be $188,000. The salvage value of the assets used in the project would be $49,000. The company uses a discount rate of 12%. (Ignore income taxes.)

Explanation / Answer

Net present value:

= $188,000×PVA(12%,7)+$88,000×PV(12%,7)-$929,000

= $188,000×4.564)+$88,000×0.452-$929,000

= $-31,192

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