Question

Brett Collins is reviewing his company's investment in a cement plant. The company paid $14,500,000 five years ago to acquire the plant. Now top management is considering an opportunity to sell it. The president wants to know whether the plant has met original expectations before he decides its fate. The company's discount rate for present value computations is 8 percent. Expected and actual cash flows follow: (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Year 1 Year 2 Year 3 Year 4 Year 5 Expected $3,380,000 $5,010,000 $4,610,000 $5,000,000 $4,270,000 Actual 2,670,000 3,040,000 4,830,000 3,820,000 3,530,000 Required a.&b. Compute the net present value of the expected and actual cash flows as of the beginning of the investment. (Negative amounts should be indicated by a minus sign. Round your intermediate calculations and final answer to the nearest whole dollar.) Net present value (expected) Net present value (actual)

Answer 1

2 Year Expected Actual ear Expected Actual 0 $(14,500,000.00) $(14,500,000.00) 0 |-14500000 1-14500000 1 $ 3,380,000.00 $ 2,670,000.00 1 3380000 12670000 2 $ 5,010,000.00 $ 3,040,000.00 5010000 3040000 3 $ 4,610,000.00 $ 4,830,000.00 4610000 4830000 4 $ 5,000,000.00 $ 3,820,000.00 5000000 3820000 5 $ 4,270,000.00 $ 3,530,000.00 4270000 3530000 NPV $ 3,165,703 $ (376,985)|| NPV =NPV(8%,B3:B7)+B2 !=NPV(8%,C3C7)+C2