Tinto Company is planning to invest in a project at a cost of $135,000. This project...

Tinto Company is planning to invest in a project at a cost of $135,000. This project has the following expected cash flows over its three-year life: Year 1, $45,000; Year 2, $52,000; and Year 3, $78,000. Management requires a 10% rate of return on its investments. Compute the net present value of this investment. Use PV tables that are in a separate file or see Appendix B of your textbook.

Year	Net Cash Flows	Present Value of 1 at 10%	Present Value of Net Cash Flows
1
2
3
Total	$175,000
Less initial investment
= Net present value

PV table:

1 .... 0.8696

2 .... 0.7561

3 .... 0.6575

Expert Solution

Year	Net Cash flows	Present Value of 1 at 10%	Present Value of Net Cash Flows	Year	Net Cash flows	Present Value of 1 at 15%	Present Value of Net Cash Flows
1	$ 45,000.00	0.9091	$ 40,909.50	1	$ 45,000.00	0.8696	$ 39,132.00
2	$ 52,000.00	0.8264	$ 42,972.80	2	$ 52,000.00	0.7561	$ 39,317.20
3	$ 78,000.00	0.7513	$ 58,601.40	3	$ 78,000.00	0.6575	$ 51,285.00
Total	$ 1,75,000.00		$ 1,42,483.70	Total	$1,75,000.00		$1,29,734.20
Less Initial Investment			$ 1,35,000.00	Less Initial Investment			$1,35,000.00

Net Present Value			$ 7,483.70	Net Present Value			$ -5,265.80





Discount factor @ 10% is not as given in the question.The given discount factor is for 15% required rate of return. So, both Discount factor @ 10% and given discount factor of 15% are used to find both Net Present Value.

ekkarill92 answered 1 year ago

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