Question

M Corporation has provided the following data concerning an investment project that it is considering: Initial investment $ 250,000 Annual cash flow $ 119,000 per year Expected life of the project 4 years Discount rate 8 % 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:

Answer 1

Answer:

$144,128

Explanation:

Calculation to determine what net present value of the project is closest to:

Initial investment = $250,000

Annual cash flow = $119,000

Expected life of project (n) = 4 years

Discount rate (i) = 8%

First step is to calculate the Present value of cash flows using this formula

Present value of cash flows = Annual cash flow x Present value annuity factor (i%, n)

Let plug in the formula

Present value of cash flows= 119000 x Present value annuity factor (8%, 4)

Present value of cash flows= 119,000 x 3.312

Present value of cash flows= $394,128

Now let determine the Net present value using this formula

Net present value = Present value of cash flows - Initial investment

Let plug in the formula

Net present value= $394,128 - $250,000

Net present value=$144,128

Therefore net present value of the project is closest to:$144,128