Question

Question 2 Thunder Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $117,571 and have an estimated useful We of 5 years. It can be sold for $60,000 at the end of that time. Amusement parks need to rotate exhibits to keep people interested. It is expected to increase net annual cash flows by $20,000. The company's borrowing rate is 8%. Its cost of capital is 10%. Click here to view PV table Calculate the net present value of this project to the company and determine whether the project is acceptable. (If the net present value is negative use either a nedarve son precong the number eg 15 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to decimal places, e.g. 125.) Net present value The project Click if you would like to show Work for this question: Open Show Work

Answer 1

Question -2	Years	Cashflow	Present value @10%
	1	20000	18181.81818	(20000/(1.1)^1)
	2	20000	16528.92562	(20000/(1.1)^2)
	3	20000	15026.29602	(20000/(1.1)^3)
	4	20000	13660.26911	(20000/(1.1)^4)
	5	80000	49673.70584	(80000/(4.4)^5)
			$113,071
	Less: Initial investment		$117,571
	Net present value		-$4,500
		The project should NOT BE ACCEPTED(REJECTED)
Question -3	Years	Cashflow	Present value
	1	34800	30260.86957	(34800/(1.15)^1
	2	34800	26313.79962	(34800/(1.15)^2
	3	34800	22881.56489	(34800/(1.15)^3
	4	34800	19897.01295	(34800/(1.15)^4
	5	34800	17301.75039	(34800/(1.15)^5
	6	34800	15045.00034	(34800/(1.15)^6
	7	34800	13082.60899	(34800/(1.15)^7
	8	34800	11376.18173	(34800/(1.15)^8
			$156,159
	Less: initial investment		$167,500
	Net Present value		-$11,341
	Hence, Downtime worth should be at least of $ 11,341 in order for project to be accepted.
Question 4	Years	Project A Cashflows	Present value of Project A cashflows		Project B Cashflows	Present value of Project B cashflows
	1	$71,000	$64,545	71,000/(1.1)^1	$48,800	$44,364	48,800/(1.1)^1
	2	$71,000	$58,678	71,000/(1.1)^2	$48,800	$40,331	48,800/(1.1)^2
	3	$71,000	$53,343	71,000/(1.1)^3	$48,800	$36,664	48,800/(1.1)^3
	4	$71,000	$48,494	71,000/(1.1)^4	$48,800	$33,331	48,800/(1.1)^4
	5	$71,000	$44,085	71,000/(1.1)^5	$48,800	$30,301	48,800/(1.1)^5
	6	$71,000	$40,078	71,000/(1.1)^6	$48,800	$27,546	48,800/(1.1)^6
	7	$71,000	$36,434	71,000/(1.1)^7	$48,800	$25,042	48,800/(1.1)^7
	8	$71,000	$33,122	71,000/(1.1)^8	$48,800	$22,766	48,800/(1.1)^8
	9	$71,000	$30,111	71,000/(1.1)^9	$48,800	$20,696	48,800/(1.1)^9
	10	$71,000	$27,374	71,000/(1.1)^10	$48,800	$18,815	48,800/(1.1)^10
	11	$71,000	$24,885	71,000/(1.1)^11	$48,800	$17,104	48,800/(1.1)^11
			$461,149			$316,959
	Less: Initial Investment		$411,000			$273,000
	NET PRESENT VALUE		$50,149			$43,959
	PROFITABILITY INDEX		PV/Initial investment
			1.12			1.16
			(461,149/411,000)			(316,959/273,000)
			Project A			Project B
	As per Net Present value Project A should be accepted
	As per Profitability index Project B should be accepted

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