Question

"Aerospace Dynamics will invest $196,000 in a project that will produce the following cash flows. The cost of capital is 10 percent. (Note that the fourth year’s cash flow is negative.) Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year Cash Flow 1 $ 45,000 2 60,000 3 54,000 4 (51,000 ) 5 160,000"a. What is the net present value of the project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.) Answer is complete but not entirely correct. Net present value 454.003

Answer 1

-$419.41

Step-by-step explanation:

The computation is shown below:

Year Cash flows Discount factor Present value

0 -$196,000 1 -$196,000 (A)

1 $45,000 0.9090909091 $40,909.09

2 $60,000 0.826446281 $49,586.78

3 $54,000 0.7513148009 $40,571.00

4 -$51,000 0.6830134554 -$34,833.69

5 $160,000 0.6209213231 $99,347.41

Total present value $195,580.59 (B)

Net present value -$419.41 (A - B)

The discount factor is computed below:

= (1 + interest rate)^number of years