Jack and Jill’s Place is a nonprofit nursery school run by the parents of the enrolled children. Since the school is out of town, it has a well rather than a city water supply. Lately, the well has become unreliable, and the school has had to bring in bottled drinking water. The school’s governing board is considering drilling a new well (at the top of the hill, naturally). The board estimates that a new well would cost $3,075 and save the school $600 annually for 10 years. The school’s hurdle rate is 8 percent. Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: Compute the new well’s net present value. Should the governing board approve the new well? (Round your final answer to the nearest dollar amount.)
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Net Present value = Present value of cash inflows - Present value of cash outflows
= 600*PVAF(8%, 10 years) - 3075
= 600*6.71 - 3075
= $951
Since NPV is positive, the well should be approved
Jack and Jill’s Place is a nonprofit nursery school run by the parents of the enrolled...
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