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Chapter 24: Q9E (page 1086)

After evaluating the risk of the investment described in Exercise 24-8, B2B Co. concludes that it must earn at least an 8% return on this investment. Compute the net present value of this investment. (Round the net present value to the nearest dollar.)

Short Answer

Expert verified

The net present value of the project is $143,035.

Step by step solution

01

Step-by-Step SolutionStep 1: Definition of investment

An investment is defined as any asset or item which is acquired with the motive of generating some income in the future.

02

Computation of net present value

Chart Values are based on:
N = 12	I = 8%

Select chart	Amount	X	PV Factor	=	Present Value

Present Value of Annuity of 1	$66,750	X	7.5361	=	$503,035

Present Value of cash inflows					$503,035
Present value of cash outflows					-360,000
Net present value					$143,035

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Most popular questions from this chapter

A company is considering investing in a new machine that requires a cash payment of \(47,947 today. The machine will generate annual cash flows of \)21,000 for the next three years. Assume the company uses an 8% discount rate. Compute the net present value of this investment. (Round your answer to the nearest dollar.)

A company is considering investing in a new machine that requires a cash payment of \(47,947 today. The machine will generate annual cash flows of \)21,000 for the next three years. What is the internal rate of return if the company buys this machine?

Yokam Company is considering two alternative projects. Project 1 requires an initial investment of \(400,000 and has a present value of cash flows of \)1,100,000. Project 2 requires an initial investment of \(4 million and has a present value of cash flows of \)6 million. Compute the profitability index for each project. Based on the profitability index, which project should the company prefer? Explain.

Refer to the information in Exercise 24-5. Assume the company requires a 10% rate of return on its investments. Compute the net present value of each potential investment. (Round to the nearest dollar.)

Refer totheinformation in Exercise 24-3 and assume instead that double-declining depreciation is applied. Compute the machine’s payback period (ignore taxes). (Round the payback period to three decimals.)

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