Question

Determine the net present value for a project that costs $104,000 and would yield after-tax cash flows of $16,000 the first year, $18,000 the second year, $21,000 the third year, $23,000 the fourth year, $27,000 the fifth year, and $33,000 the sixth year. Your firm's cost of capital is 12.00%. ***without use of financial calculator***

Answer #1

Initial Investment = $104,000

PV of Inflows

Year | Inflows | Discounting factor @ 12% | PV of Inflows |

1 | 16,000.00 | 0.8929 | 14,285.71 |

2 | 18,000.00 | 0.7972 | 14,349.49 |

3 | 21,000.00 | 0.7118 | 14,947.39 |

4 | 23,000.00 | 0.6355 | 14,616.92 |

5 | 27,000.00 | 0.5674 | 15,320.53 |

6 | 33,000.00 | 0.5066 | 16,718.83 |

PV of Inflows | 90,238.86 |

NPV = PV of Inflows - Initial Investment = 90238.86 -104000 = ($13,761.14)

NPV is negative. Project should not be undertaken.

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