Snow Inc. has just completed development of a new cell phone. The new product is expected to produce annual revenues of $1,400,000. Producing the cell phone requires an investment in new equipment, costing $1,500,000. The cell phone has a projected life cycle of 5 years. After 5 years, the equipment can be sold for $180,000. Working capital is also expected to decrease by $200,000, which Snow will recover by the end of the new product’s life cycle. Annual cash operating expenses are estimated at $820,000. The required rate of return is 8%.
Required:  
1.  Prepare a schedule of the projected annual cash flows. 
2.  Calculate the NPV using only discount factors from the Present Value of a Single Amount table shown in Present Value Tables. 
3.  Calculate the NPV using discount factors from both of the tables shown in Present Value Tables. 
Amount Descriptions  
Equipment  
Operating expenses  
Recovery of working capital  
Revenues  
Salvage  
Total  
Working capital 
Use Present Value of a Single Amount and Present Value of an Annuity tables. Use them as directed in the problem requirements.
1. Prepare a schedule of the projected annual cash flows. Refer to the list of Amount Descriptions for the exact wording of text items within your schedule. If an amount is negative or an outflow, first enter a minus sign ().
Snow Inc. 
Projected Annual Cash Flows 
1 
Year 0 

2 

3 

4 

5 
Years 14 

6 

7 

8 

9 
Year 5 

10 

11 

12 

13 

14 
2. Calculate the NPV using only discount factors from the Present Value of a Single Amount table shown in Present Value Tables. Round the present value calculation and your final answer to the nearest whole dollar.
The NPV using the present value of a single amount table is .
3. Calculate the NPV using discount factors from both of the tables shown in Present Value Tables. Round the present value calculation and your final answer to the nearest whole dollar.
The NPV using the annuity tables is .
preparation schedule of annual projected cash flows and calculating NPV of the cash flows using PVF
Particulars  inflows  PVIF/PVIFA  NPV  outflows  PVIF/PVIFA  NPV  NET PROFIT 
Initial Investment(year1 )  1500000  1  1500000  
Annual cash revenue( years 15)  1400000  3.992710037  5589794.052  
Salvage value (5th year)  180000  0.680583197  122504.9755  
total working cap decrease(for 5 years)  200000  3.992710037  798542.0074  
Annual operating exp( years 15)  820000  3.992710037  3274022.23  
6510841.035  4774022.23  17368 
Calculation of PVF
PVIF  
Disc Rate  8% 
YEAR  PV 
1  0.925925926 
2  0.85733882 
3  0.793832241 
4  0.735029853 
5  0.680583197 
PVIFA  3.992710037 
To calc PVIF  1/1*(1+8%)^N 
N= No. of years 
Get Answers For Free
Most questions answered within 1 hours.