Question

In: Accounting

Snow Inc. has just completed development of a new cell phone. The new product is expected...

Snow Inc. has just completed development of a new cell phone. The new product is expected to produce annual revenues of $1,400,000. Producing the cell phone requires an investment in new equipment, costing $1,500,000. The cell phone has a projected life cycle of 5 years. After 5 years, the equipment can be sold for $180,000. Working capital is also expected to decrease by $200,000, which Snow will recover by the end of the new product’s life cycle. Annual cash operating expenses are estimated at $820,000. The required rate of return is 8%. Required:

1. Prepare a schedule of the projected annual cash flows.

2. Calculate the NPV using only discount factors from the Present Value of a Single Amount table shown in Present Value Tables.

3. Calculate the NPV using discount factors from both of the tables shown in Present Value Tables.

I really need help with the second question, please and thank you!

Solutions

Expert Solution

Requirement : Answer to second question i.e calculating NPV using only discount factors from the Present Value of a Single Amount table

Alternative 1 : Using PV factor upto 5 decimal places

Alternative 1 : Using PV factor upto 3 decimal places


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