1 answer

Problem 22-06 Management of TSC, Inc. is evaluating a new $97,000 investment with the following estimated...

Question:

Problem 22-06 Management of TSC, Inc. is evaluating a new $97,000 investment with the following estimated cash flows: Year CaInterest Factors for the Present Value of One Dollar Time Period (e.g., year) 1 2 1% 990 980 971 2% 980 961 942 3% 4% 971 962

Problem 22-06 Management of TSC, Inc. is evaluating a new $97,000 investment with the following estimated cash flows: Year Cash Flow $ 7,000 31,000 41,000 55,000 The firm's cost of capital is 12 percent and the project will require that the firm spend $12,000 to terminate the project. Use Appendix B to answer the question. Use a minus sign to enter a negative value, if any. Round your answer to the nearest dollar. The NPV of the investment is $ Should the firm make the investment? The firm make the investment. -Select- should should not
Interest Factors for the Present Value of One Dollar Time Period (e.g., year) 1 2 1% 990 980 971 2% 980 961 942 3% 4% 971 962 943925 915 889 .889 .855 863 822 5% 952 907 .864 823 784 6% 943 890 840 792 747 7% 935 873 816 .763 713 8% 926 857 794 735 .681 9% 917 842 772 708 650 10% 909 826 751 .683 .621 12% .893 797 712 .636 567 14% 877 769 675 592 519 15% 870 .756 658 572 497 16% 862 743 .641 18% 847 718 609 516 437 20% 833 694 579 482 402 24% 806 650 524 423 341 28% 781 610 477 .373 .291 961 924 .552 5 951 906 .476 476 942 .933 .923 914 905 888 .871 .853 .837 820 838 813 789 766 744 790 760 731 703 676 746 .711 .677 .645 614 705 665 .627 592 558 .666 .623 .582 544 .508 508 630 583 540 500 463 463 596 547 502 460 422 564 513 467 424 386 507 452 404 361 322 456 400 351 .308 270 432 376 327 284 .247 410 410 .354 305 263 227 370 314 266 266 226 191 335 279 233 194 .162 275 222 179 144 .116 .227 .178 .139 .108 085 10 .896 804 475 287 .2 195 168 094 162 137 429388 356 368 326 722 701 .681 .661 .642 650 625 .601 577 555 585 557 .530 505 481 .879 870 861 527 497 469 442 417 773 758 743 415 350 319 290 263 .239 237 .208 .182 160 .140 145 215 187 163 141 .123 .061 135 112 .093 .078 065 066 052 .040 .032 .025 15 362 205 .183 .108 084 .040 16 18 19 20 .853 .844 836 828 820 728 .714 700 686 673 623 .605 587 570 554 534 513 494 475 456 458 436 416 396 377 394 339 .292 252 218 163 123 107 .093 071 .054 .032 .019 371 317 270 .198 146 108 .093 .080 .060 .045 026 .015 350 296 250 212 180 130 .095 081 .069 .051 .038 021 .012 331 276 232 194 164 116 .083 .070 .060 .043 031 .017 .009 312 258 215 178 .149 .104 .073 .061.051 .037 026 014 .007 233.184.146 116 .092 059 038 030 024 016 010 .005 002 174 131.099 .075.057.033.020.015 .012.007.004 .002.001 25 30 780 742 610 552 478 .412 375 308 295 231

Answers

Project
Discount rate 0.12
Year 0 1 2 3 4
Cash flow stream -97000 7000 31000 41000 43000
Discounting factor 1 1.12 1.2544 1.404928 1.5735194
Discounted cash flows project -97000 6250 24713.01 29182.99 27327.277
NPV = Sum of discounted cash flows
NPV Project = -9526.72
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor
Reject project as NPV is negative
.

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