Question
NET PRESENT VALUE Based upon the given information, calculate the NPV of this project and determine if it should be accepted: Investment in machine...$ 55,000
NET PRESENT VALUE
Based upon the given information, calculate the NPV of this project and determine if it should be accepted:
Investment in machine...$ 55,000
Net annual cash inflows.. 12,000
Working capital required. 10,000
Salvage value of equipment. 5,000
Life of project.. 7 years
Discount rate 10%
The working capital will be released at the end of the project. Should they buy this machine? SHOW CALCULATIONS FOR FULL CREDIT (NO RULER NEEDED).
Here are some present value tables you can use for this problem:
PRESENT VALUE TABLES
Present Value of $1
| Periods | 4% | 6% | 8% | 10% | 12% | 14% |
| 4 | .855 | .792 | .735 | .683 | .636 | .592 |
| 5 | .822 | .747 | .681 | .621 | .567 | .519 |
| 6 | .790 | .705 | .630 | .564 | .507 | .456 |
| 7 | .760 | .665 | .583 | .513 | .452 | .400 |
| 8 | .731 | .627 | .540 | .467 | .404 | .351 |
| 9 | .703 | .592 | .500 | .424 | .361 | .308 |
| 10 | .676 | .558 | .463 | .386 | .322 | .270 |
| Present | Value | of | Annuity |
|
|
|
| Periods | 4% | 6% | 8% | 10% | 12% | 14% |
| 4 | 3.630 | 3.465 | 3.312 | 3.170 | 3.037 | 2.914 |
| 5 | 4.452 | 4.212 | 3.993 | 3.791 | 3.605 | 3.433 |
| 6 | 5.242 | 4.917 | 4.623 | 4.355 | 4.111 | 3.889 |
| 7 | 6.002 | 5.582 | 5.206 | 4.868 | 4.564 | 4.288 |
| 8 | 6.733 | 6.210 | 5.747 | 5.335 | 4.968 | 4.639 |
| 9 | 7.435 | 6.802 | 6.247 | 5.759 | 5.328 | 4.946 |
| 10 | 8.111 | 7.360 | 6.710 | 6.145 | 5.650 | 5.216 |
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Financial Accounting Reporting And Analysis
Authors: Earl K. Stice, James D. Stice
7th Edition
0324227329, 978-0324227321
