Question

VII. BIG Company is considering investing in a new dock that will cost $350,000. The company...

VII.

BIG Company is considering investing in a new dock that will cost $350,000. The company expects to use the dock for 5 years, after which it will be sold for $90,000. LakeFront anticipates annual net cash inflows of $85,000 resulting from the new dock.

Instructions

  1. Calculate the net present value of the dock assuming the company's cost of capital is 10%.
  1. Calculate the net present value of the dock assuming the company's cost of capital is 15%.
  2. With Excel Formulas/work if possible
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Homework Answers

Answer #1
AT 10% Cost of Capital
PV FACTOR
Annual Net Cashinflows $85,000 3.791 $322,235
Residual Value $90,000 0.6209 $55,881
Initial Investment $350,000
NPV at 10% $28,116
AT 15% Cost of Capital
PV FACTOR
Annual Net Cashinflows $85,000 3.3522 $284,937
Residual Value $90,000 0.4972 $44,748
Initial Investment $350,000
NPV at 10% ($20,315)
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