Question

OpenStax Principles of Accounting, Volume 2: Managerial Accounting Chapter 11: Capital Budgeting Decisions PA11. LO 11.5 Gallant Sports is considering the purchase of a new company estimates that the construction will require an initial outlay of 3 is is considering the purchase of a new rock-climbing facility. The flows are estimated as follows: . Year 1 ($ 60,000) Year 2 $140,000 Year 3 $210,000 Year 4 $130,000 Assuming the company limits its analysis to four years due to economic uncertainties, determine the net present value of the rock-climbing facility. Should the company develop the facility if the required rate of return is 6%? Solution The rock-climbing facility should not be developed as the investment's return will generate less than the 6% required rate of return. Cash Flow Factor Total Present value at 6% This resource file is copyright 2019, Rice University. All Rights Reserved.

Answer 1

Cash Flow Year Factor Amount O ($350,000.00) 1 ($350,000.00) ($60,000.00) ($56,604.00) 1 0.94340 2 $140,000.00 0.89000 $124,600.00 3 $210,000.00 0.83962 $176,320.20 4 $130,000.00 0.79209 $102,971.70 ($2,712.10) Net Present Value