Question

Horn Company is evaluating an investment project that has a 6-year life and produces the following...

Horn Company is evaluating an investment project that has a 6-year life
and produces the following cash inflows:

Years 1 - 4 .............   $20,000 (each year)
Year 5 ..................   $30,000     
Year 6 ..................   ???????

The initial investment for this project is $98,320 and the net present
value of this project was calculated to be $5,057 at a cost of capital
of 5%.

Calculate the amount of the year 6 cash inflow associated with this
investment project. Ignore the effects of income taxes.

PERCENTAGES FROM THE MACRS TABLES

MACRS PROPERTY CLASS

Year

3-Year

5-Year

7-Year

1

33.33%

20.00%

14.29%

2

44.45%

32.00%

24.49%

3

14.81%

19.20%

17.49%

4

  7.41%

11.52%

12.49%

5

-----

11.52%

  8.93%

6

-----

  5.76%

  8.92%

7

-----

-----

  8.93%

8

-----

-----

  4.46%
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Answer #1
Net present value 5057
Add: Initial Investment 98320
Present value of cash inflows 103377
Less: Present value of cashinflows of 5 yrs
Year Cashflows PVF Present value
1 20000 0.952381 19047.62
2 20000 0.907029 18140.59
3 20000 0.863838 17276.75
4 20000 0.822702 16454.05
5 30000 0.783526 23505.78
Present values of cashflows of 5 yrs 94425
Present value ofcashflows of 6th year 8952
Divide: PVF at 5% for 6th year 0.746215
Amount of cashflows of Year-6 11996.54
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