Haroldsen Corporation is considering a capital budgeting project that would require an initial investment of $350,000. The investment would generate annual cash inflows of $133,000 for the life of the project, which is 4 years. At the end of the project, equipment that had been used in the project could be sold for $32,000. The company's discount rate is 14%. The net present value of the project is closest to: Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor (s) using the tables provided. Multiple Choice $214,000 $37,429 $56,373 $406,373

Question

Business

Carlee Osborne

4 March, 01:19

Haroldsen Corporation is considering a capital budgeting project that would require an initial investment of $350,000. The investment would generate annual cash inflows of $133,000 for the life of the project, which is 4 years. At the end of the project, equipment that had been used in the project could be sold for $32,000. The company's discount rate is 14%. The net present value of the project is closest to: Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor (s) using the tables provided. Multiple Choice $214,000 $37,429 $56,373 $406,373

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Answers (2)

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Moochie · Answer 1

The correct answer is option C.

Explanation:

Giving the following information:

The initial investment of $350,000. The investment would generate annual cash inflows of $133,000 for the life of the project, which is 4 years. At the end of the project, equipment that had been used in the project could be sold for $32,000. The company's discount rate is 14%.

We need to use the following formula:

NPV = - Io + [Cf / (1+i) ^n]

Io = 350,000

1 = 133,000/1.14

2 = 133,000/1.14^2

3 = 133,000/1.14^3

4 = 165,000/1.14^4

NPV = $56,470.31

Drake Woodward · Answer 2

The answer is: $56,373.

Explanation:

The project net present value is equals to the sum of:

+ Initial cash outflow: $ (350,000);

+ Present value of the annuity lasting for 4 years, with annual cash inflow of 133,000, discounted at required return rate of 14%; calculated as: 133,000/14% * [ 1 - 1.14^ (-4) ] = $387,524;

+ Present value of equipment recovery at the end of year 4: 32,000/1.14^4 = $18,946.

=> Project net present value = - 350,000 + 387,524 + 18,946 = $56,470.

So, its net present value is closest to $56,373.