Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Kenny Ltd. is considering a project that would require a $2,815,000 investment in equipment with a useful life of five years. At the end
of five years, the project would terminate and the equipment would be sold for its salvage value of $500,000. The company's discount
rate is 10%. The project would provide net operating income each year as follows:
Sales
$2,865,000
Variable expenses
1,015,000
Contribution margin.
1,850,000
Fixed expenses:
Advertising, salaries and other fixed out-of-pocket costs $750,000
Depreciation
463,000
Total fixed expenses
1,213,000
Net operating income
$ 637,000
Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables.
Required:
What is the present value of the project's annual net cash inflows? (Round discount factor(s) to 3 decimal places and final answer to
the nearest dollar amount.)
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Transcribed Image Text:Kenny Ltd. is considering a project that would require a $2,815,000 investment in equipment with a useful life of five years. At the end of five years, the project would terminate and the equipment would be sold for its salvage value of $500,000. The company's discount rate is 10%. The project would provide net operating income each year as follows: Sales $2,865,000 Variable expenses 1,015,000 Contribution margin. 1,850,000 Fixed expenses: Advertising, salaries and other fixed out-of-pocket costs $750,000 Depreciation 463,000 Total fixed expenses 1,213,000 Net operating income $ 637,000 Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables. Required: What is the present value of the project's annual net cash inflows? (Round discount factor(s) to 3 decimal places and final answer to the nearest dollar amount.)
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