Question

Helmsdale Excursions is considering investing $250,000 in a project that will begin to produce returns in the fourth year. From the end of the fourth year until the end of the twelfth year (9 periods), the annual aftertax cash flow will be $50,000. a. Calculate the net present value if the cost of capital is 8 percent. (Use a Financial calculator to arrive at the answers. Negative answer should be indicated by a minus sign. Round the intermediate and final answer to the nearest whole dollar. Omit $ sign in your response.) Net present value $ b. Should the project be undertaken? Yes or No

Answer 1

Statement showing Cash flows
Particulars	Time	PVf 8%	Amount	PV
Cash Outflows	-	1.00	(250,000.00)	(250,000.00)
PV of Cash outflows = PVCO				(250,000.00)
Cash inflows	4-12	4.9590	50,000.00	247,949.05
PV of Cash Inflows =PVCI				247,949.05
NPV= PVCI - PVCO				(2,050.95)
b) No project should not be accepted since NPV is negative
Time	PVF at 8%
4.00	0.7350
5.00	0.6806
6.00	0.6302
7.00	0.5835
8.00	0.5403
9.00	0.5002
10.00	0.4632
11.00	0.4289
12.00	0.3971
PVF from 4 to 12 year	4.9590