Neville Corporation, an amusement park, is considering a capital investment in a
ID: 2387919 • Letter: N
Question
Neville Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $174,483 and have an estimated useful life of 8 years. It will be sold for $74,200 at that time. (Amusement parks need to rotate exhibits to keep people interested.) It is expected to increase net annual cash flows by $26,600. The company's borrowing rate is 8%. Its cost of capital is 10%. Calculate the net present value of this project to the company. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round computations and final answer for present value to 0 decimal places, e.g. 125. Round computations for Discount Factor to 5 decimal places.)Explanation / Answer
Initial Investment at T0=$174483. Sale proceeds from exhibit at T8=$74,200, PV of inflow=$74,200*0.466507=$34614.85 Annual Cash Flow=$26,600 PV of Cash Flows T1,T2....T8 = $26600*5.3349 = $141909 Tota inflow=$176524 Initial outflow=$174483 NPV= $2040 Project should be accepted. (using cost of capital 10%)