(Ignore income taxes in this problem.) The Sawyer Corporation has $145,000 to invest and is considering two different projects,
X and Y. The following data are available on the projects: Click here to view Exhibit 8B-1 and Exhibit 8B-2 to determine the appropriate discount factor(s) using tables. Project X Project Y Cost of equipment needed now $ 145,000 Working capital requirement - $ 145,000 Annual cash operating inflows $ 37,000 $ 32,000 Salvage value in 5 years $ 6,000 - Both projects will have a useful life of 5 years; at the end of 5 years, the working capital will be released for use elsewhere. Sawyer's discount rate is 9%. The net present value of project Y is closest to:
1 answer:
Answer: -$20,529.60
Explanation:
Net Present value of Y = Present Value of Inflows - Present value of Outflows
Present Value of Y inflows
$32,000 inflows for 5 years. This is therefore an annuity
Present value of annuity = Annuity * Present value interest factor, 9%, 5 years
= 32,000 * 3.8897
= $124,470.40
Net Present Value = 124,470.40 - 145,000
= -$20,529.60
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