Question

Thunder Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $147,150 and have an estimated useful life of 6 years. It can be sold for $68,000 at the end of that time. (Amusement parks need to rotate exhibits to keep people interested.) It is expected to increase net annual cash flows by $24,000. The company’s borrowing rate is 8%. Its cost of capital is 10%. Click here to view the factor table. Calculate the net present value of this project to the company and determine whether the project is acceptable. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to 0 decimal places, e.g. 125.)

Net present value:

The project:

Answer 1

Years		Net cash Inflow	PV Factor 10%	Present value
1	Net Cash flows Save	24,000	0.90909	21,818
2	Net Cash flows Save	24,000	0.82645	19,835
3	Net Cash flows Save	24,000	0.75131	18,031
4	Net Cash flows Save	24,000	0.68301	16,392
5	Net Cash flows Save	24,000	0.62092	14,902
6	Net Cash flows Save	24,000	0.56447	13,547
6	Salvage value	68,000	0.56447	38,384
Total PV of Inflows				1,42,910
0	Initial Investment			1,47,150
Net Present value on the Project				-4,240
the project is not acceptable