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Atlantic Industries is evaluating a proposal which has an initial investment of $85,000 and has cash...

Atlantic Industries is evaluating a proposal which has an initial investment of $85,000 and has cash inflows of $22,000 per year for six years. The item can be sold at the end of the project for $4,000. If the firm’s discount rate is 8%, the net present value of the project is:

Present Value of $1

Periods

4%

6%

8%

10%

12%

1

.962

.943

.926

.909

.893

2

.925

.890

.857

.826

.797

3

.889

.840

.794

.751

.712

4

.855

.792

.735

.683

.636

5

.822

.747

.681

.621

.567

6

.790

.705

.630

.564

.507

7

.760

.665

.583

.513

.452

Present Value of a Series of $1 Cash Flows

Periods

4%

6%

8%

10%

12%

1

0.962

0.943

0.926

0.909

0.893

2

1.886

1.833

1.783

1.736

1.690

3

2.775

2.673

2.577

2.487

2.402

4

3.630

3.465

3.312

3.170

3.037

5

4.452

4.212

3.993

3.791

3.605

6

5.242

4.917

4.623

4.355

4.111

7

6.002

5.582

5.206

4.868

4.564
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Answer #1

Answer :

Investment = $85,000

Annual cash flow = $22,000

Salvage value = $4,000

Discount Rate = 8%

Time period 6 Years

NPV

PV of cash inflow - Investment   

PV of cash inflow * PV of annuity @ 8% for 6 years

(1). $22,000

 * 4.623 101706
(2). $4,000 * 0.630 2520
Present value of cash inflow 104226
Less : Investment 85,000
Net present value 19,226

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