Question

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 |

Answer #1

**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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