Question

question 10

wet water company drills residential and commercial wells the company is in the process of analyzing the purchase of a new drill information on the proposal is provided below:

initial investment:

asset $80000

working capital 16000

operations per year for four years :

cash receipts $80000

cash expenditures 444000

disinvestment:salvage value of drill

end of year four ) $8000

discount rate 10 percent

note: other than the initial investment cash flows are end of period the working capital is returned at the end of the investment period

1- what is the net present value for the wet water company new drill ?

1-$23579.26

2-$34507.48

3-$12651.05

4-$96000

5-$1722.83

2-in what range is the internal rate of return for the wet water company new drill ?

1-8% to 12%

2-20% to 24%

3-12% to 16%

4-16% to 20%

5-greater than 24%

Answer 1

	0	1	2	3	4	Total
Invest. In asset	-80000	-	-	-	-	-80000
Workinf capital	-16000	-	-	-	-	-16000
Cash receipts	-	80000	80000	80000	80000	320000
Cash expenditures	-	-44000	-44000	-44000	-44000	-176000
Scrap value	-	-	-	-	8000	8000
Working capital	-	-	-	-	16000	16000
PV @10%	1	0.909	0.826	0.751	0.683
Cash Flows	-96000	32727.27	29752.07	27047.33	40980.81
NPV ( r = 10%)	$34,507.48
IRR	13.07%