Homework SourseDavis Chili Company is considering an investment of 37000 wh
Davis Chili Company is considering an investment of $37,000, which produces the following inflows:
Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
Determine the net present value of the project based on a zero percent discount rate.
Determine the net present value of the project based on a 10 percent discount rate. (Do not round intermediate calculations and round your answer to 2 decimal places.)
Determine the net present value of the project based on a 16 percent discount rate. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)
| Year | Cash Flow | ||||||||||||
| 1 | $ | 17,000 | |||||||||||
| 2 | 16,000 | ||||||||||||
| 3 | 13,000 | ||||||||||||
|
Solution
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
a.Present value of inflows=17000+16000+13000
=$46000
NPV=Present value of inflows-Present value of outflows
=$46000-$37000
=$9000.
b.Present value of inflows=17000/1.1+16000/1.1^2+13000/1.1^3
=$38444.78
NPV=Present value of inflows-Present value of outflows
=$38444.78-$37000
=$1444.78(Approx)
a.Present value of inflows=17000/1.16+16000/1.16^2+13000/1.16^3
=$34874.33
NPV=Present value of inflows-Present value of outflows
=$34874.33-$37000
=($2125.67)(Approx)(Negative).
