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Lin McAdam and Lola Manners, managers of the Winchester Company, do not practice capital rationing. They...

Lin McAdam and Lola Manners, managers of the Winchester Company, do not practice capital rationing. They are considering the purchase of a new forklift to use in the warehouse. The Winchester Company’s required rate of return is 13 percent. The initial investment (a negative cash flow) and the expected positive net cash flows for years 1 through 4 for the forklift project follow.

Expected Net Cash Flow Year Forklift 0 $(12,000) 1 5,000 2 4,000 3 6,000 4 2,000 Calculate the net present value for the forklift project: Enter to the nearest whole dollar.

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Answer #1

NPV = -initial investment + PV of future cash flows

Present value = Future value/(1+i)^n

i = interest rate per period

n= number of periods

=>

NPV = -12000 + 5000/1.13 + 4000/1.13^2 + 6000/1.13^3 + 2000/1.13^4

= 942.30

= 942

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