Question

Citrus Company is considering a project that has estimated annual net cash flows of $23,430 for four years and is estimated to cost $110,000. Citrus's cost of capital is 6 percent. Determine the net present value of the project. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign. Round your final answer to 2 decimal places.) Net Present Value Based on NPV, determine whether project is acceptable to Citrus. Unacceptable O Acceptable

Answer 1

Solution 1:

Computation of NPV
Particulars	Period	Amount	PV factor at 6%	Present Value
Cash outflows:
Initial investment	0	$110,000.00	1	$110,000.00
Present Value of Cash outflows (A)				$110,000.00
Cash Inflows
Annual cash inflows	1-4	$23,430.00	3.4651	$81,187.53
Present Value of Cash Inflows (B)				$81,187.53
Net Present Value (NPV) (B-A)				-$28,812.47

As NPV is negative therefore Project is not acceptable to Citrus.

Note: Actual NPV figure may differ due to rounding off of PV factor table as same has not been provided in question.