Question

Concord Company is considering two capital investment proposals. Estimates regarding each project are provided below: Project Soup Project Nuts Initial investment $390000 $516000 Annual net income 30000 46000 Net annual cash inflow 110000 126000 Estimated useful life 5 years 6 years Salvage value 0 0 The company requires a 10% rate of return on all new investments. Present Value of an Annuity of 1 Periods 9% 10% 11% 12% 5 3.89 3.791 3.696 3.605 6 4.486 4.355 4.231 4.111 The net present value for Project Nuts is

Pina Colada, Inc. is considering purchasing equipment costing $42000 with a 6-year useful life. The equipment will provide annual cost savings of $12000 and will be depreciated straight-line over its useful life with no salvage value. Pina Colada requires a 10% rate of return.

period	8%	9%	10%	11%	12%	15%
6	4.623	4.486	4.355	4.231	4.111	3.784

What is the approximate net present value of this investment?

Answer 1

Answer:

1)

Net Present value of Project Nuts                 = Net Annual Cash in Flows x PVAF ( 10%, 6 Years) (-) Initial investment                  =    ($ 126,000 x 4.355 ) (-) $ 516,000                  =      $ 548,730 (-) $ 516,000                   =     $ 32,730

Net Present value of Project Nuts = $ 32,730

2)

Net present value of this investment                  = (Annual Cash inflows (or) Savings x PVAF ( 10%, 6 Years) (-) Initial investment (or) Cost                  =    ( $ 12,000 x 4.355 ) (-) $ 42,000                  =    $ 52,260 (-) $ 42,000                  =    $ 10,260

Net present value of this investment = $ 10,260