Question

Corporation is considering a capital budgeting project that would require an initial investment of $350,000. The investment would generate annual cash inflows of $133,000 for the life of the project, which is 4 years. At the end of the project, equipment that had been used in the project could be sold for $32,000. The company's discount rate is 14%. The net present value of the project is closest to:_____.
a. $214,000.
b. $37,429.
c. $56,373.
d. $406,373.

Answer 1

Answer:

The value is closet to option C.

Explanation:

Below is the given values:

Initial investment amount = $350000

Annual cash generated = $133000

Time period = 4 years

Salvage value = $32000

Interest rate = 14%

Net present value = Annual cash(P/A , r, n) + Salvage value (P/F, r, n) -Initial investment

Net present value = 133000 (P/A, 14%, 4) + 32000(P/F, 14%, 4) - 350000

Net present value = 133000 (2.9137) + 32000(0.59) - 350000

Net present value = $56402.1

The value is closet to option C.