Question

Skyline Corp. will invest $250,000 in a project that will not begin to produce returns until the end of the 3rd year. From the end of the 3rd year until the end of the 12th year (10 periods), the annual cash flow will be $54,000.
Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

  
a. Calculate the net present value if the cost of capital is 13 percent. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)
  

Net Present Value

b. Should the project be undertaken?

• No

• Yes

Answer 1

Ans a) - $ 57,949.30

Ans b) No, since NPV is negative

Year	Project Cash Flows (i)	DF@ 13%	DF@ 13% (ii)	PV of Project ( (i) * (ii) )
0	-250000	1	1	(2,50,000.00)
1	0	1/((1+13%)^1)	0.885	-
2	0	1/((1+13%)^2)	0.783	-
3	0	1/((1+13%)^3)	0.693	-
4	54000	1/((1+13%)^4)	0.613	33,119.21
5	54000	1/((1+13%)^5)	0.543	29,309.04
6	54000	1/((1+13%)^6)	0.480	25,937.20
7	54000	1/((1+13%)^7)	0.425	22,953.27
8	54000	1/((1+13%)^8)	0.376	20,312.63
9	54000	1/((1+13%)^9)	0.333	17,975.78
10	54000	1/((1+13%)^10)	0.295	15,907.77
11	54000	1/((1+13%)^11)	0.261	14,077.67
12	54000	1/((1+13%)^12)	0.231	12,458.12
		NPV		(57,949.30)