Question

urgent only 1 question please

Top Spin company is considering investing in a roof-top solar network to generate its own power. Assume that the expected annual cash inflows from new solar network will be $50,000. A S150,000 net initial investment is required and the network has five-year useful life and 18% required rate of return. Assume that the investment will occur immediately after management approves the project. a. For making decision on whether to approve or reject the project, compute the Net Present Value (NPV) of this new investment and analyze whether it will be accepted or rejected and why. (10 marks)

Answer 1

Net Present Value = Present Value of the Cash inflows - Initial Cash Outflows

Expected Year Cash Inflows PVF@18% PVAF 1 $ 50,000 0.8475 $ 42,372.88 2 $ 50,000 0.7182 $ 35,909.22 3 $ 50,000 0.6086 $ 30,431.54 4 $ 50,000 0.5158 $ 25,789.44 5 $ 50,000 0.4371 $ 21,855.46 PV of Expected Cash Inflows $ 156,358.55 Initial Investment $(150,000.00) Net Present Value $ 6,358.55

Note: :- 1. PVF is Present Value Factors enumerated from the PV Table @18%. 2. PVAF is the multiplication of Cash Inflows with the PVF. It is done to calculate the present value of future expected cash inflows.

The project will be accepted because the NPV is positive. The positive NPV means that the project will derive profits in the future and hence, the project can be accepted.  

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