Cleveland Cove Enterprises is evaluating the purchase of an elaborate hydraulic lift system for all of its locations to use for the boats brought in for repair. The company has narrowed their choices down to two: the B14 Model and the F54 Model. Financial data about the two choices follows. B14 Model F54 Model Investment $ 330 comma 000 $ 230 comma 000 Useful life (years) 10 10 Estimated annual net cash inflows for useful life $ 80 comma 000 $ 33 comma 000 Residual value $ 10 comma 000 $ 18 comma 000 Depreciation method Straightminusline Straightminusline Required rate of return 12 % 8 % What is the net present value of the B14 Model?

Question

Business

Lutz

6 August, 01:38

Cleveland Cove Enterprises is evaluating the purchase of an elaborate hydraulic lift system for all of its locations to use for the boats brought in for repair. The company has narrowed their choices down to two: the B14 Model and the F54 Model. Financial data about the two choices follows. B14 Model F54 Model Investment $ 330 comma 000 $ 230 comma 000 Useful life (years) 10 10 Estimated annual net cash inflows for useful life $ 80 comma 000 $ 33 comma 000 Residual value $ 10 comma 000 $ 18 comma 000 Depreciation method Straightminusline Straightminusline Required rate of return 12 % 8 % What is the net present value of the B14 Model?

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Answers (1)

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Nicholas Bright · Answer 1

NPV = $125,237.6

Explanation:

Net Present Value (NPV) : This is one of the techniques available to evaluate the feasibility of an investment project. The NPV of a project is the difference between the present value of the cash inflows and the cash outflows of the project.

Net Present Value of Model B14

Present Value (PV) of annual cash inflow = A * (1 - (1+r) ^ (-n)) / r

A - annual cash inflow - 80,000, r-12%, n - 10

PV of cash inflow = 80,000 * ((1 - (1.012) ^ (-10)) / 0.12 = 452,017.84

PV of Scrap value = F * (1+r) ^ (-n)

= 10,000 * (1.12) ^ (-10)

= 3,219.73

NPV = 452,017.84 + 3,219.73 - 330,000 = 125,237.57

NPV = $125,237.6