Question

Bahamas Company is considering investing $770,000 in a project. The life of the project would be 11 years. The project would require additional working capital of $27,000, which would be released for use elsewhere at the end of the project. The annual net cash inflows would be $164,000. The salvage value of the assets used in the project would be $37,000. The company uses a discount rate of 18%. (Ignore income taxes.)

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

Required:

Compute the net present value of the project. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)

net present value= __________???

Answer 1

Computation of  net present value of the project.

Particulars	Cash flows ($) A	PV factor @ 18% B	Discounted cash flows ($) C = A * B
Cost of Project	- 770,000	1	- 770,000
Working capital requirement	- 27,000	1	- 27,000
Net cash inflows	164,000	4.656 (PVIFA)	763,584
Terminal or salvage value	37,000.	0.162 (PVIF)	5,994
Working capital release	27,000	0.162 (PVIF)	4,374
Net present value of the project.			- $23,048

Net present value = - $23,048