Haroldsen Corporation is considering a capital budgeting project that would require an initial investment of $350,000.

Haroldsen Corporation is considering a capital budgeting project that would require an initial investment of $350,000. The investment would generate annual cash inflows of $133,000 for the life of the project, which is 4 years. At the end of the project, equipment that had been used in the project could be sold for $32,000. The company's discount rate is 14%.

(Note: For accuracy, use the appropriate discount factor(s) using Exhibits 13B-1 and 13B-2)

The net present value of the project is closest to:

Select one:

a. $214,000

b. $406,373

c. $37,429

d. $56,506

Solutions

Expert Solution

Net present value of the Project = Present value of Annual cash inflows + Present value of Resale value - Initial investment

= Annual cash inflows x PVIAF (14%, 4 years) + Resale value x PVIF (14%, 4 years) - Initial investment

= $133,000 x 2.914 + $32,000 x 0.592 - $350,000

= $387,562 + 18,944 - 350,000

= $56,506

Option d. $56,506 is the correct answer.

DEEPIKA GOYAL answered 1 year ago

Next > < Previous

Related Solutions

Cooper Industries is considering a project that would require an initial investment of $101,000. The project...

Cooper Industries is considering a project that would require an initial investment of $101,000. The project would result in cost savings of $62,000 in year 1 and $70,000 in year two. What is the internal rate of return?

Kuhn Corporation is considering a new project that will require an initial investment of $4,000,000. It...

Kuhn Corporation is considering a new project that will require an initial investment of $4,000,000. It has a target capital structure consisting of 45% debt, 4% preferred stock, and 51% common equity. Kuhn has noncallable bonds outstanding that mature in five years with a face value of $1,000, an annual coupon rate of 10%, and a market price of $1,050.76. The yield on the company’s current bonds is a good approximation of the yield on any new bonds that it...

Olinick Corporation is considering a project that would require an investment of $309,000 and would last...

Olinick Corporation is considering a project that would require an investment of $309,000 and would last for 8 years. The incremental annual revenues and expenses generated by the project during those 8 years would be as follows (Ignore income taxes.): Sales $ 235,000 Variable expenses 24,000 Contribution margin 211,000 Fixed expenses: Salaries 31,000 Rents 44,000 Depreciation 39,000 Total fixed expenses 114,000 Net operating income $ 97,000 The scrap value of the project's assets at the end of the project would...

The manager of Keebee, Inc. is considering a new project that would require an initial investment...

The manager of Keebee, Inc. is considering a new project that would require an initial investment of $1,197,810. The cost of capital or the required rate of return of this company is 10 percent. This project will generate an annual cash inflow of $300,000 in the following five years. Calculate the net present value (NPV) of this project. Indicate whether or not this project is acceptable. Calculate the internal rate of return (IRR) of this project.

Company X is evaluating a proposed capital budgeting project (project Sigma) that will require an initial...

Company X is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $850,000. Company X has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to start using the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because returns in percentage form are easier to understand and compare to required returns. Blue Llama Mining Company's WACC is 9%, and project Sigma...

Trovato Corporation is considering a project that would require an investment of $63,000. No other cash...

Trovato Corporation is considering a project that would require an investment of $63,000. No other cash outflows would be involved. The present value of the cash inflows would be $79,380. The profitability index of the project is closest to (Ignore income taxes.): Multiple Choice 0.74 0.26 1.26 0.21

What is the NPV of project A? The project would require an initial investment in equipment...

What is the NPV of project A? The project would require an initial investment in equipment of 60,000 dollars and would last for either 3 years or 4 years (the date when the project ends will not be known until it happens and that will be when the equipment stops working in either 3 years from today or 4 years from today). Annual operating cash flows of 18,600 dollars per year are expected each year until the project ends in...

A company is considering investing in a project that will require an initial investment of $535k,...

A company is considering investing in a project that will require an initial investment of $535k, a dismantling cost after 10 years of $1.6M, and will bring in a positive cash flow at the end of each of the 11 years of $210k. The company has an expected internal return rate of 12%. Show using the Equivalent Rate of Return (ERR) method whether the company should make the investment.

Shanks Corporation is considering a capital budgeting project that involves investing $600,000 in equipment that would...

Shanks Corporation is considering a capital budgeting project that involves investing $600,000 in equipment that would have a useful life of 3 years and zero salvage value. The company would also need to invest $20,000 immediately in working capital which would be released for use elsewhere at the end of the project in 3 years. The net annual operating cash inflow, which is the difference between the incremental sales revenue and incremental cash operating expenses, would be $300,000 per year....

MJ Corporation is considering an investment a new project that will require an investment of $400,000...

MJ Corporation is considering an investment a new project that will require an investment of $400,000 in new equipment today. The equipment will be straight-line depreciated to zero over a 5-year period. The project will create annual sales of $300,000, with annual cost of goods at 55% of sales. The project will be evaluated over a 5-year period, and MJ believes he can sell the equipment for $40,000 at the end of the 5th year. If the tax rate for...

Subjects