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GalinKa [24]
3 years ago
14

Kailey James Company is evaluating a capital expenditure proposal that requires an initial investment of $14,900, has predicted

cash inflows of $4,000 per year for 12 years, and has no salvage value. (a) Using a discount rate of 14 percent, determine the net present value of the investment proposal. (Round to the nearest whole number.)
Business
1 answer:
marishachu [46]3 years ago
4 0

Answer:

Year      Cashflow     [email protected]%      PV

                  $                                  $

0             (14,900)          1            (14,900)

1-12          4,000          5.6603    <u>22,640</u>

                                   NPV        <u> 7,740</u>

                                                                                                                                   

Explanation:

In this respect, we need to calculate the discount factor of annual cash  inflows for 12 years at 14 discount rate. For this purpose, present value annuity interest factor will be used since the cash inflows are constant. Then, we will multiply the annual cashflows  by the discount factor so as to obtain the present value of cash inflows. Then, we will deduct the initial outlay from the present value of cash inflows  in order to obtain the net present value of the proposal.  

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