Question

Pharoah Industries management is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. The firm uses an 18 percent discount rate for projects like this. Should management go ahead with the project?

YearCash Flow

0

-$3,373,800

1

866,110

2

905,600

3

1,090,300

4

1,305,460

5

1,616,200

What is the NPV of this project? (Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.)

Should management go ahead with the project?
Yes or no?

Answer 1

Ans NPV = $ 53967.25

Since NPV is positive, the project must be accepted. So, YES.

Year	Project Cash Flows (i)	DF@ 18%	DF@ 18% (ii)	PV of Project ( (i) * (ii) )
0	-3373800	1	1	(33,73,800.00)
1	866110	1/((1+18%)^1)	0.847	7,33,991.53
2	905600	1/((1+18%)^2)	0.718	6,50,387.82
3	1090300	1/((1+18%)^3)	0.609	6,63,590.24
4	1305460	1/((1+18%)^4)	0.516	6,73,341.74
5	1616200	1/((1+18%)^5)	0.437	7,06,455.92
		NPV		53,967.25