Question

Following is information on an investment considered by Hudson Co. The investment has zero salvage value. The company requires a 12% return from its investments. (FV of $1, PV of $1, FVA of $1 and PVA of $1). (Use appropriate factor(s) from the tables provided. Round all present value factors to 4 decimal places.)
Investment A1
Initial investment $(350,000)
Expected net cash flows in the year (excluding salvage value):
1 $130,000
2 $136,000
3 $123,000
Required:
Compute these investment's net present value.
Net Cash Flows Present Value of 1 Present Value of Net Cash Flows
Year1
Year 2 0.7972
Year 3
Totals $0 $0
Amount invested
Net present value $0

Answer 1

Answer:

 -$37,952.40

Explanation:

The computation of the net present value is shown below:

Particulars      Cash flows    Discount factor at 12%     Present value

Year 1             $130,000       0.8929                             $116,077

Year 2            $136,000      0.7972                               $108,419.20

Year 3            $123,000      0.7118                                $87,551.40

Amount

invested           ($350,000)           1                             ($350,000)

Net present value                                                        -$37,952.40