Tiff Corporation has provided the following data concerning a proposed investment project (Ignore income taxes.): Initial investment$960,000 Life of the project 5yearsWorking capital required$20,000 Annual net cash inflows$288,000 Salvage value$144,000 The company uses a discount rate of 16%. The working capital would be released at the end of the project.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 | 1-5 | 5 | |||||||
| Initial investment | $ | (960,000 | ) | ||||||
| Working capital | $ | (20,000 | ) | $ | 20,000 | ||||
| Annual net cash flow | $ | 288,000 | |||||||
| Salvage value | $ | 144,000 | |||||||
| Total cash flows (a) | $ | (980,000 | ) | $ | 288,000 | $ | 164,000 | ||
| Discount factor (16%) (b) | 1.000 | 3.274 | 0.476 | ||||||
| Present value of cash flows (a) × (b) | $ | (980,000 | ) | $ | 942,912 | $ | 78,064 | ||
| Net present value | $ | 40,976 | |||||||
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