M Corporation has provided the following data concerning an investment project that it is considering: Initial investment $ 380,000 Annual cash flow $ 133,000 per year Expected life of the project 4 years Discount rate 13 % Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor (s) using the tables provided. The net present value of the project is closest to:

Question

Business

Gerald

19 March, 19:52

M Corporation has provided the following data concerning an investment project that it is considering: Initial investment $ 380,000 Annual cash flow $ 133,000 per year Expected life of the project 4 years Discount rate 13 % Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor (s) using the tables provided. The net present value of the project is closest to:

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Macey Jimenez · Answer 1

NPV = $262,604.7

Explanation:

The NPV is the difference between the PV of cash inflows and the PV of cash outflows. A positive NPV implies a good investment decision and a negative figure implies the opposite.

NPV of an investment:

NPV = PV of Cash inflows - PV of cash outflow

PV of annuity = 1 - (1+r) ^ (-n) / r * Annual cash flow

r - discount rate, n - number of years

PV of cashinflow = 133,000 * (1 - 1.13^ (-4)) / 0.13 = 395,604.6863

NPV = 395,604.6863 - 133,000 = 262,604.7

NPV = $262,604.7