Question

Moates Corporation has provided the following data concerning an investment project that it is considering: Initial investment $ 310,000 Annual cash flow $ 137,000 per year Expected life of the project 4 years Discount rate 11 % Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided. The net present value of the project is closest to: (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

Answer 1

The net present value (NPV) of Moates Corporation's investment is calculated by determining the present value of each year's cash inflow using a discount rate of 11%, summing them up, and subtracting the initial investment to decide if the project is financially worthwhile.

Step-by-step explanation:

To determine the net present value (NPV) of Moates Corporation's investment project, we apply the concept of present value to its expected cash flows. The investment has an initial outlay of $310,000, and it generates annual cash flows of $137,000 for 4 years. Given a discount rate of 11%, we utilize present value (PV) tables or the PV formula to calculate the present value of each annual cash inflow.

To find the NPV, we calculate the PV for each year's cash flow and sum them up, then subtract the initial investment:

Year 1 PV = $137,000 / (1 + 0.11)1

Year 2 PV = $137,000 / (1 + 0.11)2

Year 3 PV = $137,000 / (1 + 0.11)3

Year 4 PV = $137,000 / (1 + 0.11)4

NPV = Sum of PVs - Initial Investment

This calculation assesses whether the project is worth undertaking by comparing the value of money now to the value of the money received in the future.

Answer 2

$115,035

Step-by-step explanation:

Calculation for what the The net present value of the project is closest to:

First step is to calculate the Present value of annual cash flows

Using this formula

Present value of annual cash flows = Annual Cash Flow * PVA of * (11%, 4 years)

Let plug in the formula

Present value of annual cash flows = $ 137,000 * 3.1024456895909

Present value of annual cash flows =$425,035

Now let calculate the net present value of the project

Net present value of the project =$425,035-$ 310,000

Net present value of the project=$115,035

Therefore the The net present value of the project is closest to: $115,035