Question

Citrus Company is considering a project that has estimated annual net cash flows of $41,535 for seven years and is estimated to cost $195,000. Citrus’s cost of capital is 12 percent.
   

Determine the net present value of the project. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign. Round your final answer to 2 decimal places.)

      

Based on NPV, determine whether project is acceptable to Citrus.

	Acceptable
	Unacceptable

Answer 1

Answer:-

Computation of the net present value of the project.

Year	Net cash flow	Discount Factor@12%	Discount factor of net cash flow
1	$41535	0.892	$37,050
2	$41535	0.797	$33,103
3	$41535	0.711	$29,531
4	$41535	0.635	$26,375
5	$41535	0.567	$23,550
6	$41535	0.506	$21,017
7	$41535	0.452	$18,774
		Total (A)	$1,89,400
		Initial cost (B)	$1,95,000
		Net Present Value (B-A)	$5,600

Notes:-

Net present value is the value of all future cashflow(positive or negative) over the entire life of an investment discounted to the present.It analysis is used to help determine how much an investment,project or any series of cashflows is worth.

A positive net present value indicates that the project earning generated by a project or investment(in present dollars) exceeds the anticipated costs(also in present dollars).

It is assuned that an investment with a positive Net present value will be profitable.

In the instant case we get positine NPV that is $5,600 which means it is profitable.So prject will be acceptable to citrus.