Blue SpruceCompany is considering two capital investment proposals. Estimates regarding each project are provided below:
Project Soup Project Nuts
Initial investment $350000 $468000
Annual net income 30000 46000
Net annual cash inflow 110000 146000
Estimated useful life 5 years 6 years
Salvage value 0 0
The company requires a 10% rate of return on all new investments.
Present Value of an Annuity of 1
Periods 9% 10% 11% 12%
5 3.89 3.791 3.696 3.605
6 4.486 4.355 4.231 4.111
The net present value for Project Nuts is:.
a) $78000.
b) $635830.
c) $167830.
d) $250206.

c) $167830.

Explanation:

The net present value is the present value of after tax cash flows from an investment less the amount invested.

NPV can be calculated using a financial calculator,

Cash flow in year 0 = $-468,000

Cash flow each year from year one to six = $146,000

I = 10%

NPV = $167,868.06

To find the NPV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

I hope my answer helps you

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