Question
Annie's Homemade is considering selling its ice cream to a regional supermarket chain that would attach a markup to the ice cream and sell it
Annie's Homemade is considering selling its ice cream to a regional supermarket chain that would attach a markup to the ice cream and sell it to end consumers. Annie's has a discount rate of 10% and it gathered the following estimates regarding this capital investment opportunity:
Initial investment | $ 240,000 |
---|---|
Working capital needed | $ 40,000 |
Annual net cash inflows in each of years 1-5 | $ 65,000 |
Working capital released at the end of year 5 | $ 40,000 |
Salvage value of equipment at the end of year 5 | $ 50,000 |
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table.
Required:
What is the present value of the annual net cash inflows ($65,000) received in each of years 1-5?
Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.
What is the present value of the working capital released at the end of year 5?
Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.
What is the present value of the equipments salvage value received at the end of year 5?
Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.
What is the net present value of this investment opportunity?
Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.
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