Question

EXHIBIT 12B-2 Present Value of an Annuity of $1 in Arrears; (14r 22% Periods 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 23% 24% 25% 1 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0885 0.877 0870 0.862 0855 0847 0840 0833 0.826 0820 0.813 0806 0.800 1886 1783 1759 1457 1440 2 1.859 1833 1808 1.736 1,713 1690 1.668 1647 1626 1.605 1585 1.566 1547 1528 1.509 1492 1474 2.673 2.577 2.775 2723 2.624 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106 2.074 2.042 2.011 1.981 1952 3.240 3170 3630 3546 3.465 3387 3.102 3037 2.974 2.914 2855 2.798 2743 2690 2.639 2589 2540 2.494 2448 2.404 2362 4 3312 4.452 4.329 4.100 3.696 5 4.212 3.993 3.890 3.791 3.605 3.517 3.433 3.352 3.274 3199 3.127 3.058 2.991 2.926 2.864 2.803 2.745 2.689 6 5.242 4917 4623 4486 4355 4231 4111 3.998 3889 3784 3.092 3020 2951 5.076 4767 3.685 3589 3498 3410 3.326 3245 3167 6.002 5.389 5.206 7 5.786 5.582 5.033 4868 4712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605 3.508 3.416 3.327 3.242 3161 6.210 6733 6.463 5.971 5747 5.535 5.335 5146 4968 4799 4.639 4487 4344 4207 4078 3954 3.837 3726 3619 3518 3421 3329 8 7.435 7108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4772 4.607 4451 4.303 4.163 4.031 3.905 3786 3.673 3.566 3.463 7360 10 8.111 7722 7024 6710 6.418 6145 5.889 5650 5.426 5.216 5.019 4833 4659 4.494 4.339 4.192 054 3923 3799 3682 357 11 8.760 8.306 7887 7499 7.139 6.805 6.495 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4656 4486 4.327 4.177 4.035 3.902 3.776 3.656 6814 4.439 42784127 12 9.385 8.863 8.384 7943 7536 7161 6.492 6194 5.918 5660 5.421 5.197 4.988 4793 4.611 3.985 3851 3725 13 9.986 9.394 8.853 8.358 7.904 7.487 7103 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4715 4.533 4.362 4203 4.053 3.912 3780 10.563 8.244 7786 14 9.899 9.295 8.745 7.367 6982 6628 6.302 6.002 5.724 5.468 5.229 5.008 4802 4611 4.432 4.265 4108 3.962 3.824 11.118 9712 15 10.380 9.108 8.559 8.061 7606 7191 6.811 6.462 6142 5.847 5.575 5.324 5.092 4876 4.675 4489 4315 4153 4,001 3859 16 11.652 10.838 10106 9.447 8.851 8.313 7824 7379 6974 6.604 6.265 5954 5.668 5405 5162 4.938 4730 4.536 4357 4189 4033 3887 17 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7.549 7120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4775 4576 4.391 4219 4.059 3.910 18 12.659 11.690 10.828 10.059 9.372 8.756 8.201 7702 7250 6.840 6.467 6.128 5.818 5534 5.273 5.033 4.812 4608 4419 4.243 4080 3928 19 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7839 7366 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4843 4635 4442 4263 4097 3942 7.469 7.025 6.623 6.259 5.929 5.628 5.353 5.101 20 13.590 12.462 11.470 10.594 9.818 9.129 8.514 7963 4.870 4657 4.460 4.279 4110 3.954 9.292 8649 8.075 7562 7102 6.687 6312 21 14.029 12.821 11.764 10.836 10.017 5.973 5665 5.384 5127 4891 4675 4.476 4.292 4121 3.963 10.201 22 14.451 13.163 12.042 11.061 9.442 8.772 8.176 7645 7170 6.743 6.359 6.011 5.696 5.410 5149 4909 4690 4488 4.302 4.130 3.970 14.857 13.489 12.303 11.272 10.37 7.230 6792 6.399 6.044 5 723 5432 5167 4925 4703 4.499 4311 4137 23 9.580 8883 8.266 7718 3.976 3.981 24 15.247 13.799 12.550 11.469 10.529 9.707 8.985 8.348 7784 7.283 6.835 6.434 6.073 5.746 5.451 5.182 4.937 4713 4.507 4318 4.143 15.622 14094 12.783 11654 10.675 9.823 9077 8422 7843 7330 6873 6 464 6.097 5766 5467 5195 4948 4721 4514 4323 4147 25 3985 26 15.983 14.375 13.003 11.826 10.810 9.929 9.161 8.488 7.896 7372 6.906 6.491 6.118 5.783 5.480 5.206 4956 4.728 4520 4.328 4151 3.988 27 16.330 14643 13.211 11987 10.935 10.027 9237 8548 7943 7409 6935 6514 3990 6136 5798 5.492 5.215 4.964 4734 4524 4332 4154 28 16.663 14898 13.406 12.137 11.051 10.116 9.307 8.602 7984 7441 6.961 6.534 6.152 5.810 5.502 5.223 4.970 4.739 4.528 4.335 4157 3.992 29 16.984 15.141 13.591 12.278 11.158 10.198 9.370 8650 8022 7470 6.983 6551 6.166 5.820 5.510 5.229 4975 4743 4531 4337 4159 3994 30 17.292 15.372 13.765 12.409 11.258 10.274 9.427 8.694 8.055 7496 7.003 6.566 6.177 5.829 5.517 5.235 4979 4746 4534 4.339 4160 3.995 40 19.793 17159 15.046 13.332 11.925 10757 9779 8.951 8.244 7634 7105 6642 6.233 5.871 5.548 5.258 4997 4760 4544 4347 4166 3.999

Moates Corporation has provided the following data concerning an investment project that it is considering:

Initial investment	$	390,000
Annual cash flow	$	127,000	per year
Expected life of the project		4	years
Discount rate		8	%

Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided.

The net present value of the project is closest to:

Multiple Choice

• $30,624

• $(30,624)

• $390,000

• $(263,000)

Answer 1

Present value of annuity at 8% for 4 years is 3.312

Present value of cash inflows = $127,000 X 3.312 = $420,624

Net present value = $420,624 - $390,000 = $30,624

1st option.