Question

Blossom Industries management is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. The firm uses an 18 percent discount rate for projects like this. Should management go ahead with the project?

Year		Cash Flow
0		-$3,029,000
1		836,610
2		874,500
3		1,100,000
4		1,373,260
5		1,589,400

What is the NPV of this project? (Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.)

The NPV is

$enter The NPV in dollars rounded to 0 decimal places

Should management go ahead with the project?

The firm should select an option                                                          rejectaccept the project.

Answer 1

The NPV is   $ 380,591

Since the NPV is positive, the management should accept the project.

Calculation of NPV:
Year	Cash flow	Discount factor	Present Value
a	b	c=1.18^-a	d=b*c
0	$       -30,29,000	1.0000	$       -30,29,000
1	$           8,36,610	0.8475	$           7,08,992
2	$           8,74,500	0.7182	$           6,28,052
3	$         11,00,000	0.6086	$           6,69,494
4	$         13,73,260	0.5158	$           7,08,312
5	$         15,89,400	0.4371	$           6,94,741
	NPV		$           3,80,591