Question

Sierra Company is considering a long-term investment project called ZIP. ZIP will require an investment of $128,000. It will have a useful life of four years and no salvage value. Annual cash inflows would increase by $79,100, and annual cash outflows would increase by $39,200. The company's required rate of return is 10%. Click here to view PV table.

(a)

Calculate the net present value on this project. (If the answer is negative, use either a negative sign preceding the number e.g. -5,275 or parentheses e.g. (5,275). For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124 and final answer to 0 decimal places, e.g. 5,275.)

Net present value

$

Identify whether the project should be accepted or rejected.

The project should be acceptedrejected .

(b)

Calculate the internal rate of return on this project. (Round answer to 1 decimal place, e.g. 5.2%)

Internal rate of return

%

Identify whether the project should be accepted or rejected.

The project should be rejectedaccepted .

Answer 1