Question

Moates Corporation has provided the following data concerning an investment project that it is considering:

Initial investment	$	200,000
Annual cash flow	$	123,000	per year
Expected life of the project		4	years
Discount rate		10	%

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided.

The net present value of the project is closest to: (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

Answer 1

Solution

Moates Corporation

Computation of net present value of the project:

Net present value = present value of cash inflows – present value of cash outflows

Since, the project results in uniform annual cash flows,

The present value of annual cash flows is computed as follows,

Annual cash flows x (P/A, 10%, 4)

= $123,000 x (P/A, 10%, 4)

= 123,000 x 3.17 = $389,910

Less: initial investment $200,000

Net Present Value = $189,910