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

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 2 years ago

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