Question

Dunay Corporation is considering investing $750,000 in a project. The life of the project would be 11 years. The project would require additional working capital of $25,000, which would be released for use elsewhere at the end of the project. The annual net cash inflows would be $160,000. The salvage value of the assets used in the project would be $35,000. The company uses a discount rate of 18%. (Ignore income taxes.)Click here to view Exhibit 13B-1 and Exhibit 13B-2 to determine the appropriate discount factor(s) using tables.Required:Compute the net present value of the project. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Answer 1

Answer:

The Net Present Value is - $20324

Explanation:    

We can use our financial calculator to work out the NPV using the cashflows from the different periods and using the discount rate given. Which is 18%.

We have 11 periods. Starting off with CF 0. ( CF = cashflow ) We will work in Thousands to make it easier to read and compute. $ ' 000

CF 0 Machine Investment (750) Working Capital Investment (25) Total=(775)

CF 1 160 inflow

CF 2 160 inflow

CF 3 160 inflow

CF 4 160 inflow

CF 5 160 inflow

CF 6 160 inflow

CF 7 160 inflow

CF 8 160 inflow

CF 9 160 inflow

CF 10 160 inflow

CF 11 160 inflow. 35 salvage value from machine. Working capital 25. Total Cashlow = 220

We now use our financial calculator and input these amounts into the calculator.

We start of by entering the data and hitting ENT and do so for every Cash flow. At the end we press 2nd function CFI on our calculator. We then enter the discount rate of 18%. and press down button to get to NPV and then press COMP.

We get an answer of -20,32400407

We now need to put the amount into thousands. Thus = -20324,004

rounded to the nearest dollar we get - $ 20324