Mattice Corporation is considering investing $440,000 in a project. The life of the project would be 5 years. The project would require additional working capital of $34,000, which would be released for use elsewhere at the end of the project. The annual net cash inflows would be $123,000. The salvage value of the assets used in the project would be $49,000. The company uses a discount rate of 11%. (Ignore income taxes.)Refer to Exhibit 12B-1 and Exhibit 12B-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 | $ | (440,000 | ) | ||||||
| Working capital | $ | (34,000 | ) | $ | 34,000 | ||||
| Annual net cash flow | $ | 123,000 | |||||||
| Salvage value | $ | 49,000 | |||||||
| Total cash flows (a) | $ | (474,000 | ) | $ | 123,000 | $ | 83,000 | ||
| Discount factor (11%) (b) | 1.000 | 3.696 | 0.593 | ||||||
| Present value of cash flows (a) × (b) | $ | (474,000 | ) | $ | 454,608 | $ | 49,219 | ||
| Net present value | $ | 29,827 | |||||||
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