Homework Answers
| Ans. 1 | Net present value (NPV) = | -$7,908 | ||
| The contract should not be taken as NPV is negative. | ||||
| *Working Notes: | ||||
| *Calculation of Present value factor @ 8.1 %. | ||||
| Year | PV @ 8% | |||
| 1 | 1 / (1 + 0.081)^1 | 0.92507 | ||
| *Calculations of Present vlaue of cash inflow = Cash inflow * PV factor | ||||
| $96,200 * 0.92507 | ||||
| $88,991.73 | ||||
| *Calculation of Net Present Value : | ||||
| Present value of cash inflows | $88,991.73 | |||
| Less: Costs | -$96,900 | |||
| Net present value | -$7,908 | |||
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