Question

Skyline Corp. will invest $130,000 in a project that will not begin to produce returns until the end of the 3rd year. From the end of the 3rd year until the end of the 12th year (10 periods), the annual cash flow will be $34,000. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.
a. Calculate the net present value if the cost of capital is 12 percent. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)
b. Should the project be undertaken?

Answer 1

Answer:

NPV = $23,146.99

Explanation:

The net present value is the present value of after tax cash flows from an investment less the amount invested.

The NPV can be calculated using a financial calculator:

Cash flow in year o = $- 130,000 

Cash flow each year in year 1 and 2 = 0

Cash flow each year in year 3 to 12 = $34,000

I = 12%

NPV = $23,146.99

To find the NPV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

I hope my answer helps you