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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)

ekkarill92 answered 1 year ago
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