Question

Please show work. thank you.

Sunrise Inc. is considering a capital investment proposal that costs $227,500 and has an estimated life of four years and no residual value. The estimated net cash flows are as follows:

Year	Net Cash Flow
1	$97,500
2	$80,000
3	$60,000
4	$40,000

The minimum desired rate of return for net present value analysis is 10%. The present value of $1 at compound interest rates of 10% for 1, 2, 3, and 4 years is .909, .826, .751, and .683, respectively. Determine the net present value.

Answer 1

Answer:

Calculation of Present Value of Cash Flows

Year	Net Cash Flow	Discount factor (10%)	PV of Net Cash Flow
1	$97,500	0.909	$88,627.50
2	$80,000	0.826	$66,080.00
3	$60,000	0.751	$45,060.00
4	$40,000	0.683	$27,320.00
	Total PV of Net Cash Flows		$227,087.50

Net Present Value = PV of Net Cash Flows - PV of Cash Outflows = $227,087.50 - $227,500 = ($412.50)

Net Present Value (Negative) = ($412.50)