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chubhunter [2.5K]
3 years ago
9

Empire Industries is considering adding a new product to its lineup. This product is expected to generate sales for four years a

fter which time the product will be discontinued. What is the project's net present value if the firm wants to earn a 13 percent rate of return?
Year. Cash Flow
0 --- -62,000
1 --- 16.500
2 --- 23,800
3 --- 27,100
4 --- 23,300

a. $3,505.52
b. $3,767.24
c. $4,312.65
d. $4,519.58
e. $4,902.71
Business
2 answers:
Andreyy893 years ago
7 0

Answer:

The project's net present value if the firm wants to earn a 13 percent rate of return is c. $4,312.65

Explanation:

The Net Present Value of a Project is Calculated by Taking the Present Day (Discounted) Value of All future Net Cashflows based on the <em>Business Cost of Capital</em> and <em>Subtracting</em> the initial Cost of the Investment.

Using A Financial Calculator Cf Function:

Cf0 = -62,000

Cf1 =   16.500

Cf2 =  23,800

Cf3 =  27,100

Cf4 =  23,300

IRR = 13 %

NPV = 4,312.65

shepuryov [24]3 years ago
7 0

Answer: C. $4,312.65

Explanation:

Given the following;

Cashflow :

Year 0 --- -62,000

Year 1 --- 16,500

Year 2 --- 23,800

Year 3 --- 27,100

Year 4 --- 23,300

Net present value(NPV)

Internal Rate of Return(IRR) = 13% = 0.13

Using the formula ;

NPV = year 0 + (year 1 ÷ (1+IRR)) + (year 2 ÷ (1+IRR)^2) + (year 3 ÷ (1+IRR)^3) + (year 4 ÷ (1+IRR)^4)

NPV = - $62,000 + ($16,500 ÷ (1.13)) + ($23,000 ÷ (1.13)^2) + ($27,100 ÷ (1.13)^3) + ($23,300 ÷ (1.13)^4)

NPV = -$62,000 + $14,601.77 + $18,638.89 + $18,781.66 + $14,290.33 = $4,312.65

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