Question

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

Initial investment $160,000
Annual cash flow 54,000 per year
Salvage value at the end of the project $11,000
Expected life of the project 4 years
Discount rate 15 %
determine the appropriate discount factor(s) using the tables provided. The net present value of the project is closest to:
a. $516
b. $67,000
c. $(5,776)
d. $160,516

Answer 1

$462

Step-by-step explanation:

The computation of the net present value is shown below:

= Present value of all year cash inflows by considering the salvage value - initial investment

where,

Present value of all year cash inflows by considering the salvage value is

= Annual cash flows × PVIFA factor for 4 years at 15% + Salvage value × discount rate at 4 year on 15%

= $54,000 × 2.855 + $11,000 × 0.572

= $154,170 + $6,292

= $160,462

And, the initial investment is $160,000

So, the net present value is

= $160,462 - $160,000

= $462

We simply applied the above formula to determine the net present value

Refer to the PVIFA table and discount factor table

This is the answer but the same is provided in the given option