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Star City is considering an investment in the community center that is expected to return the following cash flows: Use Exhibit A8 Year Net Cash
Star City is considering an investment in the community center that is expected to return the following cash flows: Use Exhibit A8 Year Net Cash Flow 36,000 66,000 96,000 96,000 116,000 4 This schedule includes all cash inflows from the project, which will also require an immediate $216,000 cash outlay The city is tax-exempt, therefore, taxes need not be considered Required: a. What is the net present value of the project if the appropriate discount rate is 28 percent? (Round PV.factor.to.3.decimal places. Negative amount should be indicated by a minus sign.) b. What is the net present value of the project if the appropriate discount rate is 8 percent? (Round pv factor.to.3 decimal places. Negative amount should be indicated by a minus sign.) The Johnson Research Organization, a nonprofit organization that does not pay taxes, is considering buying laboratory equipment with an estimated life of seven years so it will not have to use outsiders laboratories for certain types of work. The following are all of the cash flows affected by the decision: Use ExhibitA8 Investment (outflow at time 0) Periodic operating cash flows $5,150,000 Annual cash savings because outside laboratories are not used Additional cash outflow for people and supplies to operate the equipment Salvage value after seven years, which is the estimated life of this project Discount rate 1,460,000 260,000 460,000 15% Required: culate the net present value of this decision (Round PV factor to 3 decimal places.) Should the organization buy the equipment? c Yes No
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