Ipswich Corporation is considering an investment opportunity with the expected net cash inflows of $300,000 for four years
The residual value of the investment, at the end of four years, would be $70,000. The company uses a discount rate of 14%, and the initial investment is $290,000. Calculate the NPV of the investment.
Present value of an ordinary annuity of $1:
12% 13% 14% 15%
1 0.893 0.885 0.877 0.87
2 1.69 1.668 1.647 1.626
3 2.402 2.361 2.322 2.283
4 3.037 2.974 2.914 2.855
5 3.605 3.517 3.433 3.352
Present value of $1:
12% 13% 14% 15%
1 0.893 0.885 0.877 0.87
2 0.797 0.783 0.769 0.756
3 0.712 0.693 0.675 0.658
4 0.636 0.613 0.592 0.572
5 0.567 0.543 0.519 0.497
What will be an ideal response
Net cash Annuity Present
Time inflow PV factor Value
1-4 years Present value of an ordinary annuity $300,000 2.914 $874,200
4th year Present value of residual value 70,000 0.592 41,440
Total present value of cash flows 915,640
0 Initial Investment (290,000 )
Net Present value $625,640
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