Question

Skyline Corp. will invest $270,000 in a project that will not begin to produce returns until...

Skyline Corp. will invest $270,000 in a project that will not begin to produce returns until the end of the 4th year. From the end of the 4th year until the end of the 12th year (9 periods), the annual cash flow will be $52,000.

  
Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

  
a. Calculate the net present value if the cost of capital is 9 percent. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)

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Answer #1

Present value at year 3 = Annuity * [1 - 1 / (1 + r)n] / r

Present value at year 3 = 52,000 * [1 - 1 / (1 + 0.09)9] / 0.09

Present value at year 3 = 52,000 * 5.995247

Present value at year 3 = 311,752.8385

Present value = FV / (1 + r)n

Present value = 311,752.8385 / (1 + 0.09)3

Present value = 311,752.8385 / 1.295029

Present value = 240,730.3918

Net present value = Present value of cash inflows - present value of cash outflows

Net present value = 240,730.3918 - 270,000

Net present value = -$29,269.61

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