Question
NET PRESENT VALUE Based upon the given information, calculate the net present value of this project and determine if it should be accepted: Investment in
NET PRESENT VALUE
Based upon the given information, calculate the net present value 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. You may want to look at the Capital Budgeting Key Concepts document for help.
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 |
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| Present | Value | of | Annuity |
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| 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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