Question
In: Accounting
Dunay Corporation is considering investing $760,000 in a project. The life of the project would be...
|
Dunay Corporation is considering investing $760,000 in a project. The life of the project would be 11 years. The project would require additional working capital of $26,000, which would be released for use elsewhere at the end of the project. The annual net cash inflows would be $162,000. The salvage value of the assets used in the project would be $36,000. The company uses a discount rate of 18%. (Ignore income taxes.) |
| Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables. |
| Required: |
|
Compute the net present value of the project. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.) |
Solutions
Expert Solution
| Statement showing Cash flows | ||||
| Particulars | Time | PVf 18% | Amount | PV |
| Cash Outflows - Initial Investment | - | 1.00 | (760,000.00) | (760,000.00) |
| Cash Outflows - Investment in WC | - | 1.00 | (26,000.00) | (26,000.00) |
| PV of Cash outflows = PVCO | (786,000.00) | |||
| Cash inflows | 1.00 | 0.8470 | 162,000.00 | 137,214.00 |
| Cash inflows | 2.00 | 0.7180 | 162,000.00 | 116,316.00 |
| Cash inflows | 3.00 | 0.6090 | 162,000.00 | 98,658.00 |
| Cash inflows | 4.00 | 0.5160 | 162,000.00 | 83,592.00 |
| Cash inflows | 5.00 | 0.4370 | 162,000.00 | 70,794.00 |
| Cash inflows | 6.00 | 0.3700 | 162,000.00 | 59,940.00 |
| Cash inflows | 7.00 | 0.3140 | 162,000.00 | 50,868.00 |
| Cash inflows | 8.00 | 0.2660 | 162,000.00 | 43,092.00 |
| Cash inflows | 9.00 | 0.2250 | 162,000.00 | 36,450.00 |
| Cash inflows | 10.00 | 0.1910 | 162,000.00 | 30,942.00 |
| Cash inflows | 11.00 | 0.1620 | 162,000.00 | 26,244.00 |
| Cash inflows = Salvage Value | 11.00 | 0.1620 | 36,000.00 | 5,832.00 |
| Cash inflows= Release of WC | 11.00 | 0.1620 | 26,000.00 | 4,212.00 |
| PV of Cash Inflows =PVCI | 764,154.00 | |||
| NPV= PVCI - PVCO | (21,846.00) | |||
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