Question
Renner Inc. has been offered a four-year contract to supply parts for a local business. The cash flow information for the project is detailed below.
- Renner Inc. has been offered a four-year contract to supply parts for a local business. The cash flow information for the project is detailed below. The working capital would be released at the end of the contract in 4 years. The cost of capital is 12%. The PV tables are linked below. Compute the NPV of the project:
| Cash Flow Description | Cash Flow | PV Factor | PV of Cash Flow |
| Cost of equipment | ($250,000) | 1 | [ Select ] ["$250,000", "($250,000)", "($150,000)"] |
| Working capital required | ($20,000) | 1 | ($20,000) |
| Upgrading equipment in 2 years | ($90,000) | 0.79719 | [ Select ] ["($74,568.98)", "($90,000)", "($71,747.10)", "($88,746.56)"] |
| Salvage value of equipment in 4 years | $10,000 | [ Select ] ["0.86543", "0.79719", "0.6987", "0.63552"] | [ Select ] ["$6,355.20", "$7,564.78", "$8,798.65", "$5,456.89"] |
| Annual net cash inflow | $120,000 | [ Select ] ["2.40183", "3.03735", "3.03735", "3.60478"] | [ Select ] ["$364,482", "$378,568", "$545,612", "$411,812"] |
| Release of working capital | $20,000 | [ Select ] ["0.89758", "0.58972", "0.45985", "0.63552"] | [ Select ] ["($20,000)", "$20,000", "$6,655.20", "$12,710.40"] |
| Total NPV | [ Select ] ["($2,459.10)", "($10,412.80)", "$65,789.22", "$41,800.50"] | ||
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Using QuickBooks Online For Accounting 2021
Authors: Glenn Owen
4th Edition
0357442164, 9780357442166
