Please show work. thank you. Sunrise Inc. is considering a capital investment pr
ID: 2500390 • Letter: P
Question
Please show work. thank you.
Sunrise Inc. is considering a capital investment proposal that costs $227,500 and has an estimated life of four years and no residual value. The estimated net cash flows are as follows:
Year
Net Cash Flow
1
$97,500
2
$80,000
3
$60,000
4
$40,000
The minimum desired rate of return for net present value analysis is 10%. The present value of $1 at compound interest rates of 10% for 1, 2, 3, and 4 years is .909, .826, .751, and .683, respectively. Determine the net present value.
Year
Net Cash Flow
1
$97,500
2
$80,000
3
$60,000
4
$40,000
Explanation / Answer
Answer:
Calculation of Present Value of Cash Flows
Net Present Value = PV of Net Cash Flows - PV of Cash Outflows = $227,087.50 - $227,500 = ($412.50)
Net Present Value (Negative) = ($412.50)
Year Net Cash Flow Discount factor (10%) PV of Net Cash Flow 1 $97,500 0.909 $88,627.50 2 $80,000 0.826 $66,080.00 3 $60,000 0.751 $45,060.00 4 $40,000 0.683 $27,320.00 Total PV of Net Cash Flows $227,087.50