Question

Hsung Company accumulates the following data concerning a proposed capital investment: cash cost $226,445, net annual cash flows $40,500, and present value factor of cash inflows for 10 years is 5.89 (rounded). (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45).) Determine the net present value, and indicate whether the investment should be made.

Answer 1

12100

Step-by-step explanation:

40500*5.89=238545

238545-226445=12100

12100

Answer 2

Hsung Company

a. The net present value is:

= $12,100.

b. Since the investment could yield a net present value of $12,100, the investment should be made.

Step-by-step explanation:

a) Data and Calculations:

Cash cost of proposed capital investment = $226,445

Net annual cash inflows = $40,500

Present value factor of cash inflows for 10 years = 5.89 (rounded)

Present value of net annual cash inflows = $238,545 ($40,500 * 5.89)

The net present value of the proposed capital project = Present value of net annual cash inflows minus the initial investment cost

= $12,100 ($238,545 - $226,445)