Question

Dickerson Co. is evaluating a project requiring a capital expenditure of $810,000. The project has an estimated life of 4 years and no salvage value. The estimated net income and net cash flow from the project are as follows:

Year	Net Income	Net Cash Flow
1	$75,000	$280,000
2	100,000	300,000
3	109,000	200,000
4	36,000	120,000
	$320,000	$900,000

The company's minimum desired rate of return is 12%. The present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is 0.893, 0.797, 0.712, and 0.636, respectively.

Required:

Determine the net present value. Enter negative values as negative numbers.
$

Answer 1

Calculation of NPV of Project
Particulars	Year	12% Factor	Cash Inflow	Present value
		C	D	C X D
Cash Inflow
Net Cash Inflow	1	0.893	280,000	250,040.00
	2	0.797	300,000	239,100.00
	3	0.712	200,000	142,400.00
	4	0.636	120,000	76,320.00
A. Total Cash Inflow - PV				707,860.00
Cash Outflow
Cost of Project	0	1.00000	810,000	810,000.00
B. Total Cash Outflow - PV				810,000.00
NPV (A - B)				(102,140.00)