A five-year project has a projected net cash flow of $15,000, $25,000, $30,000, $20,000, and $15,000 in the next five years. It
1 answer:
The value of Net present value is $12,895.45.
Given that
initial investment = $50,000
1st-year cash flow = $15,000
2nd-year cash flow =$ 25,000
3rd-year cash flow =$ 30,000
4th-year cash flow = $20,000
5th-year cash flow = $15,000
rate = 20%
using formula
- The current value of a future stream of payments from a business, project, or investment is determined using net present value, or NPV.
- You must predict the timing and size of future cash flows in order to determine NPV, and you must choose a discount rate that is equal to the least allowable rate of return.
- Your cost of capital or the rewards offered by substitute investments with comparable risk may be reflected in the discount rate.
- Positive NPV indicates that the rate of return on a project or investment will be higher than the discount rate.
- to learn more about Net present value with the given link
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A new income statement for August for Swift company is shown below.
Also, since the president has asked you to check over the income statement and make a recommendation as to whether the company should look for a buyer for its assets.
My recommendation would be to not buy.
Swift Company
Income Statement
For the Month Ended August 31
Particulars Amount (in $) Amount (in $)
Sales .............................................................. 450,000
Cost of goods sold:
Finished goods inventory, August 1 ............... 40,000
Add: Cost of goods manufactured ................. <u>310,000 </u>
Goods available for sale ................................ 350,000
Deduct: Finished goods inventory, August 31..<u> 60,000</u> <u> 290,000 </u>
Gross margin .................................................. 160,000
Selling and administrative expenses ................. <u>142,000</u>
Net operating income...................................... 18,000
Sam failed to distinguish between product costs and period costs when preparing the August income statement, and he also failed to recognize changes in inventories between the beginning and end of the month.
Once these errors are corrected, the company's financial situation looks much better, and selling the company may not be a good idea.
Hence, my recommendation would be not to buy.
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