Question

Davis Chili Company is considering an investment of $60,000, which produces the following inflows: Year Cash Flow 1 $ 27,000 2 26,000 3 23,000 Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Determine the net present value of the project based on a zero percent discount rate. Net present value $ b. Determine the net present value of the project based on a 10 percent discount rate. (Do not round intermediate calculations and round your answer to 2 decimal places.) Net present value $ c. Determine the net present value of the project based on a 25 percent discount rate. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.) Net present value $

Answer 1

	a.
		Net present value of the project						$      16,000.00
	b.
		Net present value of the project						$         3,313.30
	c.
		Net present value of the project						$       -9,984.00
	Working:
			0%				10%				25%
	Year	Cash flows	Discount factor	Present Value		Cash flows	Discount factor	Present Value		Cash flows	Discount factor	Present Value
	0	$      -60,000	1.000	$     -60,000.00		$-60,000	1.000	$     -60,000.00		$-60,000	1.000	$     -60,000.00
	1	$        27,000	1.000	$      27,000.00		$ 27,000	0.909	$      24,545.45		$ 27,000	0.800	$      21,600.00
	2	$        26,000	1.000	$      26,000.00		$ 26,000	0.826	$      21,487.60		$ 26,000	0.640	$      16,640.00
	3	$        23,000	1.000	$      23,000.00		$ 23,000	0.751	$      17,280.24		$ 23,000	0.512	$      11,776.00
		Net Present Value		$      16,000.00				$         3,313.30				$       -9,984.00