Quiz _ chapter 12 - Required: Compute the net present value...

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Quiz – Chapter 12 – December 10, 2010 Name: ___________________________________ 1. Parks Company is considering an investment proposal in which a working capital investment of $10,000 would be required. The investment would provide cash inflows of $2,000 per year for six years. The working capital would be released for use elsewhere when the project is completed. If the company's discount rate is 10%, the investment's net present value is: A. $1,290 B. $(1,290) C. $2,000 D. $4,350 Solution Years Amount 10% factor PV Initial investment Now ($10,000 ) 1.000 ($10,000) Annual net cash receipts 1-6 $2,000 4.355 $8,710 Salvage value 6 $10,000 0.564 $5,640 NPV $4,350
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Quiz – Chapter 12 – December 10, 2010 Name: ___________________________________ 2. Dilworth Corporation has provided the following data concerning a proposed investment project: The company uses a discount rate of 11%. The working capital would be released at the end of the project.
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Unformatted text preview: Required: Compute the net present value of the project. Solution 1: Assuming salvage value of old equipment to be available now: Years Amount 11% factor PV Initial investment Now ($480,000) 1.000 ($480,000) Annual net cash receipts 1-7 $168,000 4.712 $791,616 Working capital invested now ($17,000) 1.000 ($17,000) Working capital released 7 $17,000 0.482 $8,194 Salvage value now $72,000 1.000 $72,000 NPV $374,810 Quiz Chapter 12 December 10, 2010 Name: ___________________________________ Solution 2: Assuming salvage value of proposed project will be available in 7 years Years Amount 11% factor PV Initial investment Now ($480,00 0) 1.000 ($480,00 0) Annual net cash receipts 1-7 $168,000 4.712 $791,616 Working capital invested now ($17,000) 1.000 ($17,000) Working capital released 7 $17,000 0.482 $8,194 Salvage value 7 $72,000 0.482 $34,704 NPV $337,514...
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This note was uploaded on 02/08/2011 for the course ACCOUNTING 275 taught by Professor Ngo during the Spring '11 term at Rutgers.

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Quiz _ chapter 12 - Required: Compute the net present value...

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