A corporation s considering a capital investment. The exhibit would cost $221,476 and would have a...

A corporation s considering a capital investment. The exhibit would cost $221,476 and would have a 12 year useful life. Salvage is $61,600. It would increase cash flows by $29,100. The company's borrowing rate is 8 percent. The cost of capital is 10 percent what is the net present value?

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Expert Solution

Year	Cash Flow (C)	Calculation of PV Factor	PV Factor @ 10 % (F)	PV(=C x F)
0	($221,476)	1/(1+0.1)^0	1	($221,476.0000)
1	$ 29,100	1/(1+0.1)^1	0.909090909	$26,454.5455
2	$ 29,100	1/(1+0.1)^2	0.826446281	$24,049.5868
3	$ 29,100	1/(1+0.1)^3	0.751314801	$21,863.2607
4	$ 29,100	1/(1+0.1)^4	0.683013455	$19,875.6916
5	$ 29,100	1/(1+0.1)^5	0.620921323	$18,068.8105
6	$ 29,100	1/(1+0.1)^6	0.56447393	$16,426.1914
7	$ 29,100	1/(1+0.1)^7	0.513158118	$14,932.9012
8	$ 29,100	1/(1+0.1)^8	0.46650738	$13,575.3648
9	$ 29,100	1/(1+0.1)^9	0.424097618	$12,341.2407
10	$ 29,100	1/(1+0.1)^10	0.385543289	$11,219.3097
11	$ 29,100	1/(1+0.1)^11	0.350493899	$10,199.3725
12	$ 90,700	1/(1+0.1)^12	0.318630818	$28,899.8152
			NPV	($3,569.9096)

Cash flow in year 12^th = Annual cash flow + salvage value = $ 29,700 + $ 61,000 = $ 90.700

Net present value of investment is - $ 3,569.91

ekkarill92 answered 11 months ago

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