Question

Czlapinski Corporation is considering a capital budgeting project that would require an initial investment of $440,000...

Czlapinski Corporation is considering a capital budgeting project that would require an initial investment of $440,000 and working capital of $32,000. The working capital would be released for use elsewhere at the end of the project in 4 years. The investment would generate annual cash inflows of $147,000 for the life of the project. At the end of the project, equipment that had been used in the project could be sold for $11,000. The company's discount rate is 7%.

The net present value of the project is closest to:

A. $66,282

B. $159,000

C. $58,698

D. $34,282

PV table link:

http://lectures.mhhe.com/connect/007802563x/exhibit_13b-1.jpg

http://lectures.mhhe.com/connect/007802563x/exhibit_13b-2.jpg

Please explain answer.

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Solution:

Computation of Net present value
Particulars Period PV Factor@7% Amount Present Value
Cash outflows:
Initial Investment 0 1 $440,000 $440,000
Working capital 0 1 $32,000 $32,000
Present Value of Cash outflows (A) $472,000
Cash Inflows
Annual increase in Cash Inflows:
Year 1 1 0.9345794 $147,000 $137,383
Year 2 2 0.8734387 $147,000 $128,395
Year 3 3 0.8162979 $147,000 $119,996
Year 4 4 0.7628952 $147,000 $112,146
Salvage Value 4 0.7628952 $11,000 $8,392
Recovery of Working capital 4 0.7628952 $32,000 $24,413
Present Value of Cash Inflows (B) $530,725
Net Present Value (NPV) (B-A) $58,725

Net present value of the project is closet to $58,698.

Hence option "C" is correct.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
(Ignore income taxes in this problem.) Nevus Tattoo Parlor is considering a capital budgeting project. This...
(Ignore income taxes in this problem.) Nevus Tattoo Parlor is considering a capital budgeting project. This project will initially require a $27,000 investment in equipment and a $3,000 working capital investment. The useful life of this project is 7 years with an expected salvage value of zero on the equipment. The working capital will be released at the end of the 7 years. The new system is expected to generate net cash inflows of $9,000 per year in each of...
(Ignore income taxes in this problem.) New Tattoo Parlor is considering a capital budgeting project. This...
(Ignore income taxes in this problem.) New Tattoo Parlor is considering a capital budgeting project. This project will initially require a $25,000 investment in equipment and a $3,000 working capital investment. The useful life of this project is 6 years with an expected salvage value of zero on the equipment. The working capital will be released at the end of the 6 years. In addition, the new system will require a $2,000 retro fit at the end of year 4....
Mattice Corporation is considering investing $820,000 in a project. The life of the project would be...
Mattice Corporation is considering investing $820,000 in a project. The life of the project would be 6 years. The project would require additional working capital of $32,000, which would be released for use elsewhere at the end of the project. The annual net cash inflows would be $174,000. The salvage value of the assets used in the project would be $42,000. The company uses a discount rate of 13%. (Ignore income taxes.)
Shanks Corporation is considering a capital budgeting project that involves investing $600,000 in equipment that would...
Shanks Corporation is considering a capital budgeting project that involves investing $600,000 in equipment that would have a useful life of 3 years and zero salvage value. The company would also need to invest $20,000 immediately in working capital which would be released for use elsewhere at the end of the project in 3 years. The net annual operating cash inflow, which is the difference between the incremental sales revenue and incremental cash operating expenses, would be $300,000 per year....
Shanks Corporation is considering a capital budgeting project that involves investing $600,000 in equipment that would...
Shanks Corporation is considering a capital budgeting project that involves investing $600,000 in equipment that would have a useful life of 3 years and zero salvage value. The company would also need to invest $20,000 immediately in working capital which would be released for use elsewhere at the end of the project in 3 years. The net annual operating cash inflow, which is the difference between the incremental sales revenue and incremental cash operating expenses, would be $300,000 per year....
Shanks Corporation is considering a capital budgeting project that involves investing $600,000 in equipment that would...
Shanks Corporation is considering a capital budgeting project that involves investing $600,000 in equipment that would have a useful life of 3 years and zero salvage value. The company would also need to invest $20,000 immediately in working capital which would be released for use elsewhere at the end of the project in 3 years. The net annual operating cash inflow, which is the difference between the incremental sales revenue and incremental cash operating expenses, would be $300,000 per year....
Coache Corporation is considering a capital budgeting project that would require an investment of $300,000 in...
Coache Corporation is considering a capital budgeting project that would require an investment of $300,000 in equipment with a 4 year useful life and zero salvage value. The annual incremental sales would be $610,000 and the annual incremental cash operating expenses would be $420,000. In addition, there would be a one-time renovation expense in year 3 of $37,000. The company’s income tax rate is 30%. The company uses straight-line depreciation on all equipment. The total cash flow net of income...
Coache Corporation is considering a capital budgeting project that would require an investment of $360,000 in...
Coache Corporation is considering a capital budgeting project that would require an investment of $360,000 in equipment with a 4 year useful life and zero salvage value. The annual incremental sales would be $630,000 and the annual incremental cash operating expenses would be $410,000. In addition, there would be a one-time renovation expense in year 3 of $43,000. The company’s income tax rate is 30%. The company uses straight-line depreciation on all equipment. The total cash flow net of income...
Stockinger Corporation has provided the following information concerning a capital budgeting project: Investment required in equipment...
Stockinger Corporation has provided the following information concerning a capital budgeting project: Investment required in equipment $ 314,000 Expected life of the project 4 Salvage value of equipment $ 0 Annual sales $ 665,000 Annual cash operating expenses $ 471,000 Working capital requirement $ 30,000 One-time renovation expense in year 3 $ 97,000 The company’s income tax rate is 30% and its after-tax discount rate is 11%. The working capital would be required immediately and would be released for use...
1.Coache Corporation is considering a capital budgeting project that would require an investment of $350,000 in...
1.Coache Corporation is considering a capital budgeting project that would require an investment of $350,000 in equipment with a 4 year useful life and zero salvage value. The annual incremental sales would be $690,000 and the annual incremental cash operating expenses would be $470,000. In addition, there would be a one-time renovation expense in year 3 of $42,000. The company’s income tax rate is 30%. The company uses straight-line depreciation on all equipment. The total cash flow net of income...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT