PA11.
LO 11.5Gallant Sports is considering the purchase of a new rock-climbing facility. The company estimates that the construction will require an initial outlay of $350,000. Other cash flows are estimated as follows:
Assuming the company limits its analysis to four years due to economic uncertainties, determine the net present value of the rock-climbing facility. Should the company develop the facility if the required rate of return is 6%?
Homework Answers
Net present value=-350000-60000/1.06+140000/1.06^2+210000/1.06^3+130000/1.06^4=-2712.046
As Net present value is negative, do not develop the
facility
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