Brief Exercise 24-3

Magic Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $129,006 and have an estimated useful life of 6 years. It will be sold for $66,300 at that time. (Amusement parks need to rotate exhibits to keep people interested.) It is expected to increase net annual cash flows by $21,600. The companys borrowing rate is 8%. Its cost of capital is 10%.

Click here to view the factor table.

(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Calculate the net present value of this project to the company and determine whether the project is acceptable.(If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value to 0 decimal places, e.g. 125.)

Net present value

$

The project

is notis

acceptable.