Question

$400,000 capital investment proposal has an estimated life of 4 years and no residual value. The estimated net cash flows are as follows: Year Net Cash Flow 1 $200,000 2 150,000 3 90,000 4 80,000​ The minimum desired rate of return for net present value analysis is 12%. The present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is 0.893, 0.797, 0.712, and 0.636, respectively.​ Determine the net present value.

Answer 1

Answer:

Net present value =  $13,110

Explanation:  

The computation of the net present value is shown below:

Years           Cash flows            Present value factor           Present value

0                 -$400,000                  1                                       -$400,000 (A)

1                   $200,000                0.893                                 $178,600                

2                 $150,000                 0.797                                  $119,550

3                 $90,000                   0.712                                   $64,080

4                 $80,000                   0.636                                  $50,880

Net present value                                                                    $13,110 (B - A)