Calculate the net present value for a five-year project that is expected to generate after-tax cash...
Calculate the net present value for a five-year project that is expected to generate after-tax cash inflows of R 26,000 annually. The initial investment is R 80,000. Management estimates the firm's cost of capital is 14 percent.
a) R 9,253.00
b) R 1,130.00
c) R 4,005.00
d) None of the above
Homework Answers
| Ans. | Option a $9,253 | |||
| Present value of cash inflows | $89,258 | |||
| Less: Investment | -$80,000 | |||
| Net present value | $9,258 | (Approx. $9,253) | ||
| Present value of cash inflow = Annual cash inflows * Present value of an annuity of 1 of 12% | ||||
| $26,000 * 3.433 | ||||
| $89,258.00 | ||||
| *Calculation of Present value factors: (PV @ 14%) | ||||
| Year | PV @ 14% | |||
| 1 | 1 / (1 + 0.14)^1 | 0.877193 | ||
| 2 | 1 / (1 + 0.14)^2 | 0.769468 | ||
| 3 | 1 / (1 + 0.14)^3 | 0.674972 | ||
| 4 | 1 / (1 + 0.14)^4 | 0.592080 | ||
| 5 | 1 / (1 + 0.14)^5 | 0.519369 | ||
| Present value of an annuity of 1 of 14% | 3.433081 | |||
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