### Project Evaluation Exercise#### Net Present Value Calculation**Scenario:**A company is considering a project that requires an initial cost of $14,500. The project will generate the following net cash inflows:- Year 1: $1,100- Year 2: $5,700- Year 3: $1,450- Year 4: $16,000- Year 5: $18,500The task is to calculate the Net Present Value (NPV) using a discount rate of 6%. Below is a table to compute the NPV:| Year | Net Cash Inflow | Present Value (PV) Factor | Present Value (PV) ||------|------------------|---------------------------|--------------------|| 0 | $(14,500) | | || 1 | $1,100 | | || 2 | $5,700 | | || 3 | $1,450 | | || 4 | $16,000 | | || 5 | $18,500 | | || | | | **NPV Total** |**Note:** Enter amounts rounded to two decimals (e.g., 78.76 or 400.00).The NPV formula is:\[ NPV = \sum \left( \frac{Net \ Cash \ Inflows}{(1 + r)^t} \right) - Initial \ Investment \]Where:- $ r $ is the discount rate (6% or 0.06)- $ t $ is the year**Instructions:**1. Calculate the PV for each year using the formula $ PV = \frac{Net \ Cash \ Inflow}{(1 + r)^t} $.2. Sum all the PVs from Year 0 to Year 5.3. Subtract the initial investment to get the NPV.This exercise helps in understanding the NPV method, which is a fundamental concept in financial management for evaluating capital projects.

Capital budgeting is one of the useful concept being used in finance. It helps in selection of…

5 Flag question 3 2 NPV Total 0 $18,500 $18,500 in year five. What is the NPV using 6% as the discount rate? pany is considering a project that requires an initial cost of $44,500. The project will generate after-tax het cash inflows of $1,100 in year one, $5,700 in year two, $14,500 in year three, $16,000 in year four, and NOTE: Enter amounts rounded to two decimals (e.g., 78.76 or 40.00). Net Cash Inflow Year $16,000 $14,500 $5,700 $1,100 PV

5 Flag question 3 2 NPV Total 0 $18,500 $18,500 in year five. What is the NPV using 6% as the discount rate? pany is considering a project that requires an initial cost of $44,500. The project will generate after-tax het cash inflows of $1,100 in year one, $5,700 in year two, $14,500 in year three, $16,000 in year four, and NOTE: Enter amounts rounded to two decimals (e.g., 78.76 or 40.00). Net Cash Inflow Year $16,000 $14,500 $5,700 $1,100 PV

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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