Citrus Company is considering a project that has estimated annual net cash flows

Question

Citrus Company is considering a project that has estimated annual net cash flows of $29,820 for ten years and is estimated to cost $140,000. Citrus’s cost of capital is 12 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. Negative amount should be indicated by a minus sign. Round your final answer to 2 decimal places.)

      

Based on NPV, determine whether project is acceptable to Citrus.

Explanation / Answer

The following is the calculation of NPV:

present value of cash outflows - present value of cash inflows.

here,

present value of cash outflows = $140,000.

present value of cash inflows = $29,820 .* (PV factor 10 years, 12%)

PV factor 10 years , 12% = [1 - (1+r)^(-n) ] / r

here, r = 12% =>0.12, n = 10years

=> [ 1 - (1.12)^(-10)] / 0.12

=> [ 0.6780268/0.12]

=>5.65022.

present value of cash inflows = $29,820 * 5.65022

=>$168,489.56.

now,

net present value of the project = 168,489.56 - 140,000

=>$28,489.56.

2nd part:

Acceptable.

sine NPV is positive the project is acceptable to Citrus.

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