Ignore Income taxes in this problem.) The Sawyer Corporation has $85,000 to inve
ID: 2438266 • Letter: I
Question
Ignore Income taxes in this problem.) The Sawyer Corporation has $85,000 to invest and is considering two different projects, X and Y. The following data are avallable on the projects: Click here to view Exhibit 881 and Exhibit 8-2 to determine the appropriate discount factorts) using tables Cost of equipment needed now Working capital requirement Annual cesh operating inflows Solvege value in 5 yeers $85.000 $23,000 9000$18.000 $85,000 Both projects will have a useful life of 5 years; at the end of 5 years, the working capital will be released for use elsewhere. Sawyer's discount rate is 12% The net present value of project X is closest to: O $1.616 O $8.409) O $1984 O $3,018 O Type here to searchExplanation / Answer
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=23000/1.12+23000/1.12^2+23000/1.12^3+23000/1.12^4+23000/1.12^5+9000/1.12^5
=23000[1/1.12+1/1.12^2+........+1/1.12^5]+9000/1.12^5
=(23000*3.605)+(9000*0.567)
=$88018
NPV=Present value of inflows-Present value of outflows
=$88018-$85000
=$3018(Approx).