Question

"Aerospace Dynamics will invest $196,000 in a project that will produce the following cash flows. The cost of capital is 10 percent. (Note that the fourth year’s cash flow is negative.) Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year Cash Flow 1 $ 45,000 2 60,000 3 54,000 4 (51,000 ) 5 160,000"a. What is the net present value of the project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.) Answer is complete but not entirely correct. Net present value 454.003

Answer 1

Answer:

-$419.41

Explanation:

The computation is shown below:

Year Cash flows Discount factor Present value

0 -$196,000                 1                          -$196,000   (A)

1 $45,000               0.9090909091       $40,909.09

2 $60,000               0.826446281         $49,586.78

3 $54,000               0.7513148009          $40,571.00

4 -$51,000               0.6830134554        -$34,833.69

5 $160,000             0.6209213231          $99,347.41

Total present value                                      $195,580.59  (B)

Net present value                                       -$419.41   (A - B)

The discount factor is computed below:

= (1 + interest rate)^number of years