Citrus Company is considering a project that has estimated annual net cash flows
ID: 2530210 • Letter: C
Question
Citrus Company is considering a project that has estimated annual net cash flows of $42,600 for eight years and is estimated to cost $200,000. Citrus’s cost of capital is 13 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.)
Explanation / Answer
Net present value (NPV) = $4,428.88
Estimated Cost = $2,00,000
Annual Cash flow = $42,600
Period = 8 Years
Discount Rate = 13%
Net present value (NPV) = Present Vale of cash flows – Estimated costs
= [ $42,600 x (PVAF 13%,8 Years) ] -$2,00,000
= [ $42,600 x 4.7988*] -$2,00,000
= $2,04,428.88 - $2,00,000
= $4,428.88
*Taken from the Present value annuity factor table corresponding to 13% and 8 Years