Answer:
$10,313.50
Accept the project
Explanation:
The net present value is the present value of after tax cash flows from an investment less the amount invested.
The NPV can be found using a financial calculator:
Cash flow for year 0 = $136,000
Cash Flow for year 1 = $40,000
Cash Flow for year 2 = $50,900
Cash flow for year 3 = $46,200
Cash flow for year 4 = $43,900
I = 9%
NPV = $10,313.50
The project should be accepted because the NPV is postive. It means that the discounted after tax cash flows is greater than the amount investment. This means the project will be profitable.
I hope my answer helps you
Answer:
10,313.51
Explanation:
The required rate of return for this project is 9 percent and this is the rate on which the present values of the cash flows are to be computed. The present value of the cash flows can be computed using the following formula
PV = FV/(1+i)n
Where PV = Present value
FV = Future value
i = required rate of return
n = the year in which the cash flow occurred
Putting the values into the formula, we get the present value of the cash flow occurring at the end of the first year as under
PV = 40,000/(1+0.09) = 40,000/1.09 = 36,697.25
The present values of the subsequent cash flows are provided below
PV = 50,900/(1+0.09)2 = 50,900/1.1881= 42,841.51
PV = 46,200/(1+0.09)3 = 46,200/1.29503= 35,674.88
PV = 43,900/(1+0.09)4 = 43,900/1.411582= 31,099.87
Adding up the present values that have been computed above, we get the sum of present value of cash inflows as under
36,697.25 + 42,841.51 + 35,674.88 + 31,099.87 = 146,313.51
The net present value of the project can be computed using the following equation
NPV = Sum of present value of cash inflows – Initial Cash outflow
Putting the values in the above equation, we get
NPV = 146,313.51 – 136,000 = $10,313.51 approximately
Since the project has a positive net present value, it should be accepted!
