Question

Moates Corporation has provided the following data concerning an investment project that it is considering:

Initial investment: $250,000
Annual cash flow: $119,000 per year
Expected life of the project 4 years
Discount rate 8%

Determine the appropriate discount factor(s) using the tables provided. The net present value of the project is closest to:________

a. $250,000
b. $144,128
c. $(131,000)
d. $(144,128)

Answer 1

The net present value of the project is closest to $144,128. The right answer is b

Step-by-step explanation:

In order to calculate the The net present value of the project we would have to use the following formula:

Net present value = PV of cash inflows - Initial investment

Present value of cash inflows = Annual cash flow * PVIFA (N,I) where N = 4 and I = 8%

Present value of cash inflows= 119000 * PVIFA (4, 8%) = 119000 * 3.3121

Present value of cash inflows=$394,135

Therefore, Net present value= $394,135 - $250,000

Net present value= $144,135

The net present value of the project is closest to $144,128