Question

# Davis Chili Company is considering an investment of \$37,000, which produces the following inflows: Year Cash...

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

 a. Determine the net present value of the project based on a zero percent discount rate.

 Net present value \$

 b. Determine the net present value of the project based on a 10 percent discount rate. (Do not round intermediate calculations and round your answer to 2 decimal places.)

 Net present value \$

 c. Determine the net present value of the project based on a 16 percent discount rate. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)

 Net present value \$

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 inflows-Present 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 inflows-Present 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 inflows-Present value of outflows

=\$34874.33-\$37000

=(\$2125.67)(Approx)(Negative).

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