Question

# Davis Chili Company is considering an investment of \$65,000, which produces the following inflows: Year Cash...

Davis Chili Company is considering an investment of \$65,000, which produces the following inflows:

 Year Cash Flow 1 \$ 29,000 2 28,000 3 25,000

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.

b. Determine the net present value of the project based on a 11 percent discount rate. (Do not round intermediate calculations and round your answer to 2 decimal places.)

c. Determine the net present value of the project based on a 20 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.)

a)

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

Net present value = -65,000 + 29,000 / (1 + 0)^1 + 28,000 / (1 + 0)^2 + 25,000 / (1 + 0)^3

Net present value = -65,000 + 29,000 + 28,000 + 25,000

Net present value = \$17,000.00

b)

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

Net present value = -65,000 + 29,000 / (1 + 0.11)^1 + 28,000 / (1 + 0.11)^2 + 25,000 / (1 + 0.11)^3

Net present value = -65,000 + 26,126.1261 + 22,725.4281 + 18,279.7845

Net present value = 2,131.34

c)

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

Net present value = -65,000 + 29,000 / (1 + 0.2)^1 + 28,000 / (1 + 0.2)^2 + 25,000 / (1 + 0.2)^3

Net present value = -65,000 + 24,166.6667 + 19,444.444 + 14,467.5926

Net present value = -6,921.30

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