Cooney Inc. has provided the following data concerning a proposed investment project (Ignore income taxes.): Initial investment$160,000 Life of the project 4yearsAnnual net cash inflows$70,000 Salvage value$16,000 The company uses a discount rate of 17%.See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided.Required:Compute the net present value of the project.
What will be an ideal response?
| Year | |||||||||
| Now | 1-4 | 4 | |||||||
| Initial investment | $ | (160,000 | ) | ||||||
| Annual net cash flow | $ | 70,000 | |||||||
| Salvage value | $ | 16,000 | |||||||
| Total cash flows (a) | $ | (160,000 | ) | $ | 70,000 | $ | 16,000 | ||
| Discount factor (17%) (b) | 1.000 | 2.743 | 0.534 | ||||||
| Present value of cash flows (a) × (b) | $ | (160,000 | ) | $ | 192,010 | $ | 8,544 | ||
| Net present value | $ | 40,554 | |||||||
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