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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