Aerospace Dynamics will invest $145,000 in a project that will produce the follo

Question

Aerospace Dynamics will invest $145,000 in a project that will produce the following cash flows. The cost of capital is 9 percent. (Note that the fourth year’s cash flow is negative.) Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

  

a. What is the net present value of the project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)
  

Net present value: __________

  
b. Should the project be undertaken?
  

Year Cash Flow 1 $ 40,000 2 55,000 3 60,000 4 (47,000 ) 5 130,000

Explanation / Answer

a. NPV = -$145,000 + ($40,000 / 1.09) + ($55,000 / 1.092) + ($60,000 / 1.093) + (-$47,000 / 1.094) + ($130,000 / 1.095) = $35,515.75

b. Yes

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