Question

Acme Corp is considering a project to increase production by expanding the production facility. The company will invest cash at the start of the project the invest in machines a training new employees in the following years while income from increased production is also received. The flowing values are the net cash inflow and outflows. Acme Corp uses a 14% rate of return. Calculate the Net Present Value for the project. Initial Cash Outlay at beginning of project Income at end of first year Income at end of second year -29,245 7,974 7,751 7,626 8,089 Income at end of third year Income at end of fourth year Use the values from the table below to discount the net cash flow values. The answer is calculated on these discount factors, using the calculator NPV function may result in a slightly different number that the problem will not count as correct. Only round the final answer to the nearest whole dollar amount. n\r 12% 13% 14% 15% 16% 1 year 0.8929 0.8850 0.8772 0.8696 0.8621 2 year 0.7972 0.7831 0.7695 0.7561 0.7432 3 year 0.7118 0.6931 0.6575 0.6750 0.5921 4 year 0.6355 0.6133 0.5718 0.6407 0.5523 0.4761 5 year 0.5674 0.5428 0.5194 0.4972 This problem is a variation of the example on page 286-287 Ch26

Answer 1

Given rate of return = 14%

So, 14% is used to discount the cash flows to find the Net Present value (NPV).

Calculation of NPV:

NPV = Present value of cash outflows - present value of cash inflows

Present value of cash outflows = 29245

Present value of cash inflows:

Year	Cash flows (a)	Discount factor @ 14% (b)	Discounted Cash flows (c) = (a) * (b)
1	7974	0.8772	6994.7928
2	7751	0.7695	5964.3945
3	7626	0.675	5147.55
4	8089	0.5921	4789.4969
Present value of cash inflows			22896.2342

Therefore , present value of cash inflows = 22896.2342

NPV = Present value of cash outflows - present value of cash inflows

NPV = 29245 - 22896.2342

NPV = 6348.7658 = 6349

Therefore, NPV is 6349.