NPV: Net present value (NPV) is the method to evaluate the project feasibility. This method calculates the present value of cash inflows and outflows, and then calculates the net present value of the investment. A project should be accepted if it has a positive NPV. The formula to calculate the NPV is as follows: NPV = Present value of cash inflows – Present value of cash out flows To calculate: The Net present value.

Question

Want to see the full answer?

Answer 1

Question

Chapter 11, Problem 1.3GAP

To determine

Concept introduction:

NPV:

Net present value (NPV) is the method to evaluate the project feasibility. This method calculates the present value of cash inflows and outflows, and then calculates the net present value of the investment. A project should be accepted if it has a positive NPV. The formula to calculate the NPV is as follows:

NPV = Present value of cash inflows – Present value of cash out flows

To calculate:

The Net present value.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Information for two alternative projects involving machinery investments follows. Project 1 requires an initial investment of $148,000. Project 2 requires an initial investment of $133,000. Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Project 1 $ 120,000 Project 2 $ 100,000 70,000 25, 000 13,000 $ 12,000 37,000 23,000 25, 000 $ 15,000 Income (a) Compute each project's annual net cash flow. (b) Compute payback period for each investment. Complete this question by entering your answers in the tabs below. Required A Required B Compute each project's annual net cash flow, Annual Amounts Project 1 Project 2 Income Cash Flow Income Cash Flow Sales of new product 120,000 100,000 Expenses Malerials, labor, and overhead (except depreciation) 70.000 37,000 Depreciation-Machinery 25.000 23.000 Seling, general, and administrative expenses 13,000 25,000 Income Net cash flow…

Using the payback and ARR methods to make capital investment decisions Refer to the Hunter Valley Snow Park Lodge expansion project in Short Exercise S26-4 and your calculations in Short Exercises S26-5 and S26-6. Assume the expansion has zero residual value. Requirements Will the payback change? Explain your answer. Recalculate the payback if it changes. Round to one decimal place. Will the project’s ARR change? Explain your answer. Recalculate ARR if it changes. Round to two decimal places. Assume Hunter Valley screens its potential capital investments using the following decision criteria: Will Hunter Valley consider this project further or reject it?

Consider the following two projects: Project Year 0 Year 1 Year 2 Year 3 Year 4 Discount Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow Rate A - 100 40 50 60 N/A 0.18 B - 73 30 30 30 30 0.18 Assume that projects A and B are mutually exclusive. The correct investment decision and the best rationale for that decision is to A. invest in project B, since NPV, > NPV, A B. invest in project A, since NPV, > 0. OC. invest in project A, since NPV, IRR, A'