Question

Following is information on an investment considered by Hudson Co. The investment has zero salvage value. The company requires a 12% return from its investments. (FV of $1, PV of $1, FVA of $1 and PVA of $1). (Use appropriate factor(s) from the tables provided. Round all present value factors to 4 decimal places.)

Investment A1
Initial investment $(350,000)
Expected net cash flows in the year (excluding salvage value):
1 $130,000
2 $136,000
3 $123,000
Required:
Compute these investment's net present value.
Net Cash Flows Present Value of 1 Present Value of Net Cash Flows
Year1
Year 2 0.7972
Year 3
Totals $0 $0
Amount invested
Net present value $0

Answer 1

-$37,952.40

Step-by-step explanation:

The computation of the net present value is shown below:

Particulars Cash flows Discount factor at 12% Present value

Year 1 $130,000 0.8929 $116,077

Year 2 $136,000 0.7972 $108,419.20

Year 3 $123,000 0.7118 $87,551.40

Amount

invested ($350,000) 1 ($350,000)

Net present value -$37,952.40