Question

Moreno Corporation is considering investing in specialized equipment costing $525,000. The equipment has a useful life of five years and a residual value of $55,000. Depreciation is calculated using the straight-line method. The expected net cash inflows from the investment are

Year 1	$245,000
Year 2	$190,000
Year 3	$152,000
Year 4	$112,000
Year 5	$95,000
	$794,000

Moreno Corporation's required rate of return is 14%.

The net present value of the Moreno Corporation's investment is closest to

Select one:

a. $25,639 positive

b. $54,184 positive

c. $82,729 positive

d. $269,000 positive

how do i calculate this with a Calculator? BA II PLUS Texas instrument ? ??

Answer 1

The net present value of the Moreno Corporation's investment is closest to is as follows:

Year	Annual Cash Flow	PV @ 14%	Present Value
1	$245,000	0.877193	$214,912.29
2	$190,000	0.769468	$146,198.92
3	$152,000	0.674972	$102,595.74
4	$112,000	0.59208	$66,312.96
5	$95,000	0.519369	$49,340.06
5	$55,000	0.519369	$28,565.30
		Total	$607,925.27

Net Present Value = Total Present Value of Investment - Initial Investment Cost

                         = $607,925.27 - $525,000

                           = $82,925.27 (Positive)

The net present value of the Moreno Corporation's investment is $82,925.27 positive which is closest to $82,729 positive.

So correct answer is option (c) or $82,729 positive