Question

Use present value tables (a) Jared Jewelers Calculated the NPV of a project and found it to be: The project's life was estimated to be: The required rate of return used for the NPV calculation was: The project was expected to produce annual after-tax cash flows of: $49,800 9 years 12% $124,000 What was the required investment for Jared Jewelers? (Round to the nearest dollar) (b) H&Q Sales Calculated the NPV of a project and found it to be: The project's life was estimated to be: The required rate of return used for the NPV calculation was: The required investment used for the project was: $42,500 10 years 12% $640,000 What was the expected annual cash flow for H&Q Sales? (Round to the nearest dollar)

Answer 1

Solution a:

Required investment = Present value of after tax cash flows - NPV

= $124,000 * Cumulative PV factor at 12% for 9 periods - $49,800

= $124,000 * 5.32825 - $49,800 = $610,903

Solution b:

Present value of cash inflows = Required investment + NPV = $640,000 + $42,500 = $682,500

Expected annual cash flow = $682,500 / cumulative PV factor at 12% for 10 periods

= $682,500 / 5.65022

= $120,792