Davis Chili Company is considering an investment of $37,000, which produces the following inflows:
Year  Cash Flow  
1  $  17,000  
2  16,000  
3  13,000  

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
a.Present value of inflows=17000+16000+13000
=$46000
NPV=Present value of inflowsPresent value of outflows
=$46000$37000
=$9000.
b.Present value of inflows=17000/1.1+16000/1.1^2+13000/1.1^3
=$38444.78
NPV=Present value of inflowsPresent value of outflows
=$38444.78$37000
=$1444.78(Approx)
a.Present value of inflows=17000/1.16+16000/1.16^2+13000/1.16^3
=$34874.33
NPV=Present value of inflowsPresent value of outflows
=$34874.33$37000
=($2125.67)(Approx)(Negative).
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