Citrus Company is considering a project that has estimated annual net cash flows
ID: 2480507 • Letter: C
Question
Citrus Company is considering a project that has estimated annual net cash flows of $32,000 for six years and is estimated to cost $150,000. Citrus’s cost of capital is 8 percent. Determine the net present value of the project. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Round your final answers to 2 decimal places.)
Net Present Value ___________
Based on NPV, determine whether project is acceptable to Citrus.
Based on NPV, determine whether project is acceptable to Citrus.
Acceptable Not AcceptableExplanation / Answer
Solution:
Net Present Value = Present Value of Cash Inflows - Present Value of Cash Outflows
= [$32,000 x PVIFA (8%, 6)] - $150,000
= ($32,000 x 4.62288) - $150,000
= $147,932 - $150,000
= --$2,068
Since the NPV is negative Project is not acceptable.