Question

**Net present value:** Crescent Industries is
planning to replace some existing machinery in its plant. The cost
of the new equipment and the resulting cash flows are shown in the
accompanying table.

Year | Cash Flow |
---|---|

0 | -$3,493,710 |

1 | $816,490 |

2 | $930,375 |

3 | $1,216,906 |

4 | $1,341,053 |

5 | $1,392,665 |

If the company uses an 18 percent discount rate for project like this, the NPV is $____, and the company should reject or accept the project?

Answer #1

Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

- Press the CF button.
- CF0= -$3,493,710. It is entered with a negative sign since it is a cash outflow.
- Cash flow for all the years should be entered.
- Press Enter and down arrow after inputting each cash flow.
- After entering the last cash flow, press the NPV button and enter the discount rate of 18%.
- Press the down arrow and CPT buttons to get the net present value.

Net Present value of cash flows at 18% discount rate is
-**$92,494.9974**-**$92,495.**

The company should **reject** the project since it
generates a negative net present value.

In case of any query, kindly comment on the solution.

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