Question

Heedy Inc. is considering a capital investment proposal that costs $460,000 and has an estimated life of four years, and no residual value. The estimated net cash flows are as follows: Year Net Cash Flow 1 $195,000 2 160,000 3 120,000 4 80,000 The minimum desired rate of return for net present value analysis is 10%. The present value of $1 at compound interest rates of 10% for 1, 2, 3, and 4 years is 0.909, 0.826, 0.751, and 0.683, respectively. Determine the net present value. Enter negative values as negative numbers.

Answer 1

Answer:

The net present value of the capital investment proposal is -$5,825.00  

Explanation:

The net present value above is the present value of outflows minus the present of value of inflows using the provided discount factors for the relevant years as provided for the four years.

Find detailed calculation below:

Years   cash flows   DCF   Present Values  

0            -460,000.00   1.000  -460,000.00  

1.         195,000.00   0.909   177,255.00  

2        160,000.00   0.826   132,160.00  

3           120,000.00   0.751   90,120.00  

4        80,000.00   0.683   54,640.00  

 Net Present Value           -5,825.00