Question

# Wayne Company is considering a long-term investment project called ZIP. ZIP will require an investment of...

Wayne Company is considering a long-term investment project called ZIP. ZIP will require an investment of \$134,800. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by \$79,000, and annual cash outflows would increase by \$38,000. The company’s required rate of return is 8%. Click here to view PV table.

Calculate the net present value on this project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answer to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

 Net present value

Net Cash inflow for the year is calculated below:

Net Cash inflow for the year = Increase in annual cash inflow - Increase in annual cash outflow

= \$79,000 - \$38,000

= \$41,000

Net present value is calculated below:

Years Annual cash Inflow(A) Present Value Factor@ 8%(B) Present Value(A*B)
1 41,000 0.92593 37,963
2 41,000 0.85734 35,151
3 41,000 0.79383 32,547
4   41,000 0.73503 30,136
Total \$135,797

Net Present value = Total Present,Value - Initial Investment

= \$135,797 - \$134,800

= \$997

Net Present value is positive (\$997) because total present value of investment is more than initial investment

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