Question

# Jasper Metals is considering installing a new molding machine which is expected to produce operating cash...

Jasper Metals is considering installing a new molding machine which is expected to produce operating cash flows of \$55,000 per year for 7 years. At the beginning of the project, inventory will decrease by \$16,000, accounts receivables will increase by \$21,000, and accounts payable will increase by \$15,000. At the end of the project, net working capital will return to the level it was prior to undertaking the new project. The initial cost of the molding machine is \$249,000. The equipment will be depreciated straight-line to a zero book value over the life of the project. The equipment will be salvaged at the end of the project creating an aftertax cash flow of \$48,000. What is the net present value of this project given a required return of 9.9 percent?

A. \$48,746

B. \$56,525

C. \$59,426

D. \$47,504

E. \$47,129

#### Homework Answers

Answer #1

CF0 = -\$249,000 + \$16,000 - \$21,000 + \$15,000 = -\$239,000

C07 = \$55,000 + \$48,000 - \$16,000 + \$21,000 - \$15,000 = \$93,000

We need to enter the following values in the financial calculator:

Press CF, then press 2nd, CE/C, to clear the CF spreadsheet.

Now, enter CF0 = -\$239,000; Press down key, enter C01 = \$55,000, press down key, enter F01 = 6; press down key; enter \$93,000, press down key(twice).

Now, press NPV, enter I = 9.9%, press down key, then CPT, which gives NPV = \$49,271.45

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