Homework Answers
Answer:
1.
Net Present value (NPV) = $34,750
Project life = 8 years
Required rate of return = 14%
Annual after-tax cashflows = $108,600
Net Present value=[Annual after-tax cashflows * (Present value of annuity for 14% for 8 years)] - Initial Investment
$34,750 = [$108,600 * 4.63886] - Intial Investment
$34,750 = $503,780 - Intial Investment
Initial Investment = $503,780 - $34,750
Initial Investment = $469,030
2.
Net Present value (NPV) = $42,550
Project life = 6 years
Required rate of return = 12%
Initial Investment = $580,000
Net Present value=[Annual cashflows * (Present value of annuity for 12% for 6 years)] - Initial Investment
$42,550 = [Annual cashflows * 4.11141] - $580,000
$580,000 + $42,550 = [Annual cashflows * 4.11141]
$622,550 = [Annual cashflows * 4.11141]
Annual cashflows = $622,550 / 4.11141
Annual cashflows = $151,420
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