Question

Hsung Company accumulates the following data concerning a proposed capital investment: cash cost $193,872, net annual cash flows $44,200, and present value factor of cash inflows for 10 years 4.66 (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

NPV = $12,100

the project should be carried out

Step-by-step explanation:

initial outlay = -$193,872

net cash flows years 1 - 10 = $44,200

present value of net cash flows = $44,200 x 4.66 = $205,972

net present value (NPV) = initial outlay + present value of cash flows = -$193,872 + $205,972 = $12,100

this investment should be carried out since its NPV is positive, therefore, it increases the company's wealth.