Question

Your answer: (CHAPTER 10) Your boss is considering a 5-year investment project. If the project is accepted, it would require an immediate spending of $796 to buy all necessary production equipment. This equipment would be sold at the end of the project and bring your company estimated $120 in after-tax sale proceeds. Your boss's consulting team estimated that the annual after-tax profits (or operating cash flows) would equal $165. The team also recommends immediately setting aside $49 in cash to cover any unforeseen expenses. The required annual rate of return is 9.1%. Calculate the Net Present Value of this proposed investment project. (Do NOT use "$" in your answer. Increase decimal places for any intermediate calculations, from the default 2 to 6 or higher. Only round your answer to TWO decimal places. For example, 1,000.23 or -1,000.23)

Answer 1

NPV = PV of Cash Inflows - PV of CashOutflows

Year	Particulars	CF	PVF @9.1%	Disc CF
0	Investment + Cash set aside for Unforeseen	$ -845.00	1.0000	$ -845.00
1	Cash Flow	$ 165.00	0.9166	$ 151.24
2	Cash Flow	$ 165.00	0.8401	$ 138.62
3	Cash Flow	$ 165.00	0.7701	$ 127.06
4	Cash Flow	$ 165.00	0.7058	$ 116.46
5	Cash Flow + Cash set aside + Resale Price	$ 334.00	0.6470	$ 216.08
NPV	$   -95.53

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