Skyline Corp will invest 270000 in a project that will not b

Skyline Corp. will invest $270,000 in a project that will not begin to produce returns until the end of the 4th year. From the end of the 4th year until the end of the 12th year (9 periods), the annual cash flow will be $52,000.

  
Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

  
a. Calculate the net present value if the cost of capital is 9 percent. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)

Solution

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=52000/1.09^4+52000/1.09^5+52000/1.09^6+...........+52000/1.09^12

=52000[1/1.09^4+1/1.09^5+..............+1/1.09^12]

=52000*4.629430611

=$240730.39

NPV=Present value of inflows-Present value of outflows

=$240730.39-$270000

=-$29269.61(Approx)(Negative).