Ipswich Corporation is considering an investment opportunity with the expected net cash inflows of $300,000 for four years
The residual value of the investment, at the end of four years, would be $70,000. The company uses a discount rate of 14%, and the initial investment is $290,000. Calculate the NPV of the investment.
Present value of an ordinary annuity of $1:
12% 13% 14% 15%
1 0.893 0.885 0.877 0.87
2 1.69 1.668 1.647 1.626
3 2.402 2.361 2.322 2.283
4 3.037 2.974 2.914 2.855
5 3.605 3.517 3.433 3.352
Present value of $1:
12% 13% 14% 15%
1 0.893 0.885 0.877 0.87
2 0.797 0.783 0.769 0.756
3 0.712 0.693 0.675 0.658
4 0.636 0.613 0.592 0.572
5 0.567 0.543 0.519 0.497
What will be an ideal response
Net cash Annuity Present
Time inflow PV factor Value
1-4 years Present value of an ordinary annuity $300,000 2.914 $874,200
4th year Present value of residual value 70,000 0.592 41,440
Total present value of cash flows 915,640
0 Initial Investment (290,000 )
Net Present value $625,640
You might also like to view...
If demand increases and supply decreases, then the:
a) equilibrium quantity increases but the effect on the equilibrium price is unknown. b) equilibrium price rises but the effect on the equilibrium quantity is unknown. c) equilibrium quantity decreases but the effect on the equilibrium price is unknown. d) effect on both equilibrium price and quantity is unknown. e) equilibrium price falls but the effect on the equilibrium quantity is unknown.
Scanner-delivered coupons encourage:
A) brand switching B) repeat purchases C) trial purchases D) brand loyalty